Four Phases of Wealth: Are Boomers Prepared to Retire?

With 8,000 people turning 65 every day in America, Baby Boomers are prepping for retirement. The question is whether or not they are financially prepared to do so.

An understanding of the four phases of wealth will aid in preparing them to utilize their hard earned savings to the best of its potential. They are accumulation, pre-retirement (aka retirement danger zone), retirement and legacy.

Beginning from approximately age 25, the accumulation phase encompasses socking money away in various retirement vehicles, such as 401(k) plans and IRAs. The up side of this era is being able to more easily recover from losses by taking reasonable risks on more aggressive funds, stocks and bonds. Generally, this phase will last until 10 years before your desired retirement age.

During the pre-retirement (aka retirement danger zone) phase, reassessment of risk tolerance begins and you realize that losses during this time may more dramatically affect your ability to retire when planned. The shift toward more stable, low risk assets begins.

When retirement arrives, risk and loss are your most dangerous enemy. The tide turns toward seeking out low or no risk alternatives to mutual funds. Retirement is about being able to reap the rewards of various resources that you have built over time, brick by brick, including Social Security, 401(k)s, IRAs, free and clear real estate, certificates of deposit and standard savings, to name a few. During this time, you should also plan a long-term care or home health care strategy.

The legacy phase is all about what you will leave behind for your loved ones. Ask yourself what you want to accomplish after you are gone, then set up a legacy plan with an estate attorney to make sure that all goes according to plan.

Thoughtful planning and attention to detail during all four phases will ensure that you and those close to you are well cared for in your retirement and beyond.

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