When preparing for retirement, it is important to understand\nthe money cycle. Most people think there are only two parts to it, when there\nare really three parts. While you are working, you are in the accumulation\nphase. You are paying down major debts such as a mortgage and student loans. <\/p>\n\n\n\n
You are\nhopefully saving money in a variety of different accounts such as 401(k) s,\nbrokerage accounts and other investments. You have a pay check coming in on a\nregular basis, which covers your expenses and savings. You are not consuming\nthese savings because you will need them someday when your paycheck stops.<\/p>\n\n\n\n
Many people\nenter the accumulation phase when they complete school. Sometimes they have\nbeen partially in accumulation while still receiving their education. The time\nframe until retirement may be thirty, forty or more years. Because of this long\ntime frame and the fact that income for living expenses is coming from wages\nand not savings, people can take on more risk.<\/p>\n\n\n\n
History\nshows that if you have a long enough time frame, the stock market offers the\nbest opportunity for high returns. There can however be big swings in the\nmarket. This does not matter while you are accumulating if you have enough time\nuntil you need the funds. At the beginning of 2000, it took twelve years to\nrecover an S&P 500 investment. The Japanese stock market has still not\nrecovered from thirty years ago! Still, the US market gives you the best chance\nfor long term growth.<\/p>\n\n\n\n
The most\nimportant consideration during the accumulation phase is to invest as much as\npossible and do it regularly. If you invest the same amount every month,\nsometime you will be buying more shares than in other months. When the market\ndips, you will be buying more shares. When the market rises, you will get fewer\nshares. This is known as dollar cost averring. This does not assure you of\nmaking a profit, but it usually results in a lower average cost per share.<\/p>\n\n\n\n
The last\nphase is distribution. This is when you retire and your paycheck stops. Most\npeople use to get a pension when they retired. Baby boomers are the first\ngeneration where many retirees do not receive one. Most will receive Social\nSecurity. These two income sources often leave a short fall of needed\nretirement income. This must be made up from savings during the accumulation\nyears.<\/p>\n\n\n\n
The\nimportant phase that many people forget is the “preservation” phase.\nThis should start about five years before you retire and protect the first\nseven or so years of your retirement. Investments in this time period should be\nprotected from stock market risk. While there never is a good time to\nexperience a market correction, there is a worst time. This is right before or\nearly during retirement. <\/p>\n\n\n\n
This is the\ntime sequence of risk can wipe out your portfolio. This risk is the evil twin\nof dollar cost averaging. You never have time to make up early losses because\nyou are pulling needed income out of your retirement accounts. Sequence of risk\nis not a problem during accumulation. The only issue then is not saving enough.\nDuring distribution early losses can destroy your portfolio. This is why you\nmust remember the “preservation” phase goes in the middle between the\nother two events. This will give you a more enjoyable retirement.<\/p>\n","protected":false},"excerpt":{"rendered":"
When preparing for retirement, it is important to understand the money cycle. Most people think there are only two parts to it, when there are really three parts. While you are working, you are in the accumulation phase. You are paying down major debts such as a mortgage and student loans. You are hopefully […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[],"tags":[],"acf":[],"yoast_head":"\n