Just as your physical and emotional development moves through different stages and needs as you grow and mature, your financial life also passes through cycles that require different priorities with the passing of time. By paying attention to the right things at the right times, you have a much better chance of positioning yourself well financially for whatever stage you are in.
According to various sources, there are four basic phases that most individuals pass through during their financial life cycles. While described differently by different experts, the basic stages are:
- Growth/accumulation (early career)
- Growth/management (middle career)
- Consolidation/preservation (late career)
- Distribution/transfer (retirement)
Tips for your early career
The most important thing for young individuals just launching their careers is to start saving, even at a modest level. Persons in their 20s who get in the habit of socking away even as little as $25 per month are more likely to develop the savings habit, which puts them in the best position to let compounding work for them over the next 30 or 40 years. People in their 20s who save 10–15% of their income can build significant assets before retirement. On the other hand, those who wait until their 40s to start saving will need to put away 25% or more of their incomes to achieve the same goal.
Tips for your middle career
Those reaching their 30s are often beginning to hit their stride professionally. These individuals should focus on putting as much as possible into 401K, 403B, IRA, or other retirement savings accounts, as well as other employer-sponsored savings plans that may be available. The period when your earnings are starting to ramp up is the best time to solidify the savings habit and to begin making smart investments that can grow faster than inflation and provide for long-term growth.
By this time, investors in their 30s should also be getting serious about educating themselves in the fundamentals of investing and the financial markets—which doesn’t have to be expensive. Attending free seminars, getting in the habit of reading or listening to the financial news, and even regular coffee appointments with a savvy friend can help with more confidence and basic knowledge of investing. Mid-career investors should also seek investments that have the best chance of outperforming inflation over the long haul. A focus on stock funds and ETFs can position them for the long-term growth they need to avoid falling into an underperformance trap that could leave them lacking the necessary resources for a satisfying retirement in future years.
Tips for your late career
By this point, many investors are reaching the peak of their earning lives. This is often the life phase when they are finally coming out from under major debts, such as education loans and other responsibilities. On the other hand, other major expenses are coming into view: kid’s college costs, or dealing with major life changes. To the extent possible, investors in their 40s should focus on relieving themselves of as much debt as possible. This may mean forgoing the dream car or delaying the purchase of a bigger home. At this time it probably also makes sense to talk to a registered, professional financial advisor about the best ways to shore up for the future: retirement strategies, investments, and insurance. This meeting can help you understand what the best investment vehicles are for you and help you focus on things you can control, like tax efficiency and fees.
Toward the end of this phase of the financial life cycle, it’s time to get an accurate forecast of retirement expenses and the resources needed to meet them. After getting a good assessment of future needs and assets, investors in their 50s may need to focus on maximizing their contributions to retirement plans, using the IRS “catchup provision” if needed. They may also want to consider establishing a “glide path” strategy for gradually reducing the volatility in their investment portfolios, since they are reaching the point where they have less and less time to make up for a negative market cycle.
Tips for the retirement phase
Investors in this stage are ready to reap the benefits of a lifetime of success, hard work, and careful financial strategy. They will want to take a careful look at wills, trusts, and other estate planning documents to be certain that the provisions still match their current family and financial situation.
Those in their 60s should also be looking at long-term care (LTC) expenses and possibly reviewing insurance and other options for funding LTC. They should also consult with qualified financial advisors for the best strategies for utilizing their retirement accounts in a tax-efficient way. They need to have clarity on decisions and timing regarding Social Security eligibility, Medicare and Medigap insurance. They will also need to make some decisions about controlling living costs, whether that means downsizing, relocating to a less expensive region, or some other strategy.
At Mathis Wealth Management, we know that your financial planning needs change throughout your life. Because of our fiduciary commitment to gain a thorough knowledge of each client and their priorities, needs, and goals, we are able to offer guidance that is tailored to your specific goals and position in the financial life cycle. To learn more about how we tailor our guidance to your unique needs, read about our investment management services.