Every person has different circumstances, needs, and goals that factor in when determining a roadmap to their pre-retirement planning.
Although these circumstances vary between individuals, there are some distinct financial life stages in pre-retirement planning. They are asset accumulation, asset preservation, and asset distribution.
Each stage changes the way that investors manage risk, diversify their assets, and the amount they are able to invest. Navigating between these different stages and meeting your financial goals requires sound planning, monitoring your investments, and constant updating of your goals and objectives.
The earlier you start planning for retirement the longer you have to reach your goals.
The first stage in retirement planning is asset accumulation. This is the foundation of successful pre-retirement planning and it is never too early or too late to start this stage.
During this stage an individual will determine what they can afford to set aside for retirement and to analyze all of their different options for saving for their retirement.
These options would include: investing in their companies 401(k), 403(b) or other retirement plan, opening a traditional IRA or Roth IRA, opening a non-qualified account, setting up an emergency fund, or any combination of these.
After you have determined what your options are it is important to select an appropriate asset allocation (percent invested in stocks, percent invested in bonds or fixed accounts) that will meet your long-term goals. Choosing the wrong asset allocation can be detrimental to your long-term goals.
The next stage in retirement planning is asset preservation. At this stage an individual is probably close to their peek earning years and will be able to invest more if they need to make up for previous years when their investments did not perform as well as expected or for their younger years that they did not invest for their retirement.
For those that have invested and have reached their investments goals to this point, they would re-analyze their asset allocation and make any necessary changes to reflect their new goals and start planning for retirement. Balancing an investor's risk tolerance with their return requirements is the most significant challenge at this stage.
The final stage is asset distribution. Proper financial planning throughout the years will allow an individual to start taking advantage of their years of planning and saving for retirement.
At this stage an individual will be able to determine what type of income they want to receive from their retirement accounts to continue to maintain their pre-retirement lifestyle. After they determine the amount of income they would like to receive they might have to change their investment portfolio to allow them to receive this income.
At this stage it is also very important to make sure that they have the proper insurance in place (i.e. long term care insurance, life insurance, health insurance) to make sure that they do not lose their retirement investments that they have spent most of their life saving.
It is also equally important to make sure that they have all of their estate planning in force (i.e. wills, trusts, proper registration of accounts and beneficiaries.)
Understanding the different stages in retirement planning is very important and is something that should not be taken lightly if you wish to be able to enjoy your retirement years.
If you should have any further questions about proper retirement planning you should contact your financial advisor.
Steven J. Bailey CFP, CLU, ChFC is a registered representative of American Portfolios Financial Services, Inc. Member FINRA/SIPC, Advisory Services offered through American Portfolios Advisors, Inc., located at 992 E. State St. Salem and can be reached at 330-337-7720 or www.baileyfinancialplanning.com if you should have any further questions regarding this matter.