Accumulation. This phase of retirement planning occurs during your prime working years. The most common mistake made during the accumulation phase is not putting enough earnings aside for saving, or not using appropriately aggressive investment vehicles. Tax considerations can also be a pitfall of this phase, as some retirement savings vehicles can have more tax advantages than others.
Don’t forget to regularly check in with your accountant, as well as your financial advisor, while in the accumulation phase. In addition, there is no better time to consider putting an estate plan into place. By having a well-considered, professionally drafted estate plan comprising a trust, will, powers of attorney and other health care documents, you are assured that your assets are distributed according to your wishes and your health care decisions are communicated to your health care providers by trusted proxies in the event of your incapacity.
Preservation. No one can predict with 100% certainty what investments will do next, and although you need to have some decent market exposure during your accumulation phase as you near the end of your working years, you should take steps to preserve the funds you have accumulated by sheltering them from too much exposure. Put a plan in place to limit and mitigate risk.
Distribution. This may seem like the easy part—the retirement finish line. Unfortunately, it is not that simple, and distribution may be the riskiest phase in retirement planning. Here again, an estate plan can offer the solution. You are no longer generating income, and you will need to rely on all that you have accumulated to last you for what will hopefully be a long and fruitful retirement. You will still need your assets to generate income to an extent, but you will also need to carefully balance this with reduced market exposure. You will need to consider tax strategies to get the most out of your savings, and you will be secure knowing that your estate planning is in place as you look ahead to the distant future. A financial team consisting of your estate planning attorney, financial advisor and certified public accountant will be invaluable as you plan out the years ahead.