If you asked people approaching their planned retirement age if they wish they had saved more in their earlier working years, almost all would say “yes.”
Without a time machine, we can’t go back and save more sooner. We can only make changes going forward to improve our retirement income.
But even if we’ve been good savers, saving consistently during the earlier years of life isn’t sufficient, by itself, to ensure a steady retirement income.
After you enter the workforce, there are three main periods of your financial life, according to Texas Financial & Retirement:
- accumulation phase
- preservation phase
- distribution phase
In the accumulation phase, you are working and earning an income. You are starting, then adding to, your savings. You may create a Will to handle your finances correctly in the event you don’t survive into retirement. You may also purchase life insurance to guarantee some income for your loved ones.
In the distribution phase, the focus becomes getting the assets you’ve accumulated into the hands of those you wish to receive them, with the least possible tax burden. And, of course, not running out of money for as long as you live.
Sadly, some people who save well during their accumulation phase and who may also have solid plans for how they’d like to spend those savings during their distribution phase hit a major obstacle in what should have been their preservation phase.
The preservation phase focuses on preservation and planning. Investments and strategies which have worked well during the accumulation phase may not make much sense during the transition from accumulating to distributing. Once someone reaches a point in time five to seven years from their planned retirement, they should be shifting their investments into more stable, less risky, investments.
A steep drop in stock prices from which you might easily recover when you are expecting another couple of decades of earnings can wipe out much of your accumulated savings if it occurs a year or two before you retire. That could drastically alter your lifestyle throughout all of your retirement years. And it can often be avoided, or at least minimized. That’s why the preservation phase should include an analysis of your current investments. That analysis often leads to a trade-off, accepting lower returns and growth in exchange for increased security on a nest egg you no longer have time to replace.
In the preservation phase you should also do some tax planning, create an income plan for your later distribution phase and make plans to insure any eventual surviving spouse is provided for adequately.
These are only a few of the things you need to consider with respect to your retirement savings. Financial professionals like those at Texas Financial & Retirement can help you make good decisions before, during and after your preservation phase based on your personal financial situation and needs.
At Texas Financial and Retirement, we work with a varied group of clients. Some who are already retired, some who are looking forward to retirement in the near future and others who are still working to accumulate their nest egg. Contact us at email@example.com or at (903) 534-5477 and let us see if we can help you to get retirement right.