For most people, wealth accumulation, wealth preservation, and wealth distribution will all play a part in a complete financial picture throughout life. Primarily, because with the passage of time, priorities change.
As retirement grows closer, mindset regarding investment strategies may have to be modified.
For most in their thirties or forties, the goal is accumulation – investing and saving to accumulate as much wealth as possible for retirement years. Growing older, the goal is usually switched to wealth preservation – where investments might become more conservative as risk management and tax reduction support the objective of making assets last.
Investors – and even “regular” individuals working with a financial advisor often receive guidance to help adjust their approach to “wealth” for each phase of life.
When a person is under 40, they may be encouraged to invest for growth for a few reasons. First, there is usually a good amount of time until retirement. Second, studies have shown the stock market will often outperform fixed-rate investments and savings account (in the long term). Additionally, as personal earnings increase, you can generally defer larger and larger portions of your salary toward you retirement savings.
Many people approach their maximum earning potential in their forties. This is when portfolios might begin to shift toward a mix of growth and preservation-oriented strategies and investments.
For many, this shift towards asset preservation becomes more pronounced the older they become – though some growth-oriented investments could remain in their portfolios. This is often because during retirement, financial advisors will likely seek an asset allocation plan that will generate a regular income stream, without impeding your potential for growth. Of course, it also must be an allocation plan that makes the individual as comfortable as possible too.
Today, there are still some people in their fifties or sixties who remain in the accumulation phase, either out of desire or out of necessity. This is not really unusual anymore. And again, there can be multiple reasons this happens. For example, saving for retirement might have been started later in life, there might have been a financial setback or two, or the individual has hit a high-point or stride in his or her career and sees no reason to stop the flow yet. Regardless the reason, the same shift to wealth preservation will likely still take place at some point in life, just later for some than others.
Unfortunately, there are also still some people in their forties – and even fifties and beyond – who don’t have any retirement savings. For those persons, a financial advisor may suggest starting or continuing with an aggressive investment strategy in the hope of “making up for lost time.” Of course, this could be a financially-dangerous approach so it should be carefully considered with a financial advisor you trust and who is skilled in working with those approaching or nearing the retirement years.
Finally, when the time does come for “wealth distribution” that requires careful analysis, wise counsel, and smart moves as well.
Things that might be considered are:
- How retirement plan savings should be reinvested and managed
- A schedule of sensible withdrawals
- Measures for tax efficiency and reduction
- An estate plan to permit tax-efficient transfer of assets to heirs
- Protection against risk-exposure
If preserving wealth is not on your mind and you are nearing or approaching retirement, it might be a really good time to look at your financial strategy and what or who you are utilizing to help you make smart decisions. It’s probably a really wise time to confer with a qualified financial advisor and discuss the shift from wealth accumulation to wealth preservation so that you can be adequately ready for wealth distribution.
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