Everyone knows the importance of retirement planning these days, but fewer people remember that, like all good plans, a successful retirement strategy has multiple stages and tangible goals. Use this guide to the 3 key phases of successful retirement planning to determine where you are in your plan—and how you can get to the next stage.
1. The Accumulation Phase
Maybe you’re in your accumulation phase right now—and actually, you may have been for a while. The accumulation phase begins when you enter the workforce (which may have been some time ago if you’re thinking about retiring any time soon) and doesn’t end until you leave the workforce.
Why is the accumulation phase important? Quite simply because this is the stage of your plan when you’re actively accumulating funds and setting them aside for later use. Many, many folks leave saving for retirement until late in the accumulation phase, bur the earlier you can get started, the better. If you’re nearing the end of the accumulation phase though, don’t worry: you still have time. No matter how close to (or far from) retirement you think you are, you can actively build your future through multiple income streams, including contributions to 401Ks, IRAs, life insurance policies, deferred income annuities, and your investment portfolio. A diversified set of income streams from some or all of these sources—plus Social Security—can help guarantee that you’ll have enough to retire comfortably.
2. The Retirement Income Planning Phase
It might seem a little strange to call one of the stages in your retirement planning the “retirement income planning” phase, but this is a critically important period. It is the transition between the accumulation phase and the distribution phase, a time of scrutinizing household budgets, supplemental health plans, as well as reviewing your relocation and downsizing options. Approximately 10 years before you want to retire, you should be taking stock of the income streams you’ve built over your time in the workforce to ensure you’re ready to retire comfortably.
Lots of people don’t actively think about retirement and their savings until they’ve entered this phase (even though you should be thinking about it for much longer). That’s because, unlike the accumulation phase, the retirement income-planning phase feels much more tangible for people: they’re working toward a particular goal. This is the stage when you’d meet with a financial planner, review your portfolios, discuss your options for additional and diversified income, and work on accelerated savings and growth if need be.
In the retirement income planning phase, people may create monthly budgets to compare to projected retirement income and discuss creating other streams of income to help support them in retirement. You might also discuss your Social Security strategy, to make sure you’re taking full advantage of the options that will benefit you the most when you enter the third and final phase. Your financial planner can help you tailor a plan that will help you met your goals.
3. The Distribution Phase
You’ve done all the planning and all the saving in the last two steps, so the distribution phase might not really seem like a phase but an end goal. After all, this is the stage you enter when you actually retire. Now, instead of planning for retirement or actively accumulating funds, you’re using the funds you built in the last two steps to support yourself in retirement. The distribution phase is all about enjoying the fruits of your hard work and careful planning. You might meet with your financial planner periodically to determine if any adjustments are needed. While you’re not actively accumulating wealth any longer, your portfolio might still be increasing in value, which can help you offset unexpected costs if your situation changes.
No matter which phase of retirement planning you’re in now, meeting with a financial planner is a good idea to ensure that you are doing everything you can to prepare for a comfortable retirement.