Money Read Time: 10 min

Navigate Life’s Transitions with Confidence

Most people would probably agree that once we complete our desired level of education—or even before this—we need to attend to the responsibilities of our careers, finances, insurance and the like. But, many overlook the advantages of adopting different, strategic approaches for each stage of our financial life cycle. And, of course, wealth can be defined differently from one person to the next—whether by net worth, or by the means to spend time as you please or the freedom to help others. Regardless of differing opinions, goals and preferences, when we consider our life stages, certain commonalities exist among the strategies suitable for navigating each transition and each stage.

So, what are the financial life stages and how can we navigate these transitions?

Let’s examine a wider perspective on the financial stages you’ll likely experience and some strategies you can use as you move through various phases.

Career Stages and Building Wealth

In your twenties and thirties, you’re likely finished with education. You might be settling into a career, while paying down a mortgage and perhaps some other debt. Meanwhile, this time should also be used to grow your wealth.

In the career stage, you might also be looking at paying for your kids’ college, buying stock or a new home or even pursuing some further education yourself. College funds, a 401(k), high-yield savings and other investments are all vehicles that can be used to that end. Where most people find a challenge, however, is how to balance day-to-day financial needs with the pursuit of long-term financial goals. This is where the guidance of a financial professional can be particularly advantageous.

As you move into middle age, your children might become more financially independent. It is also at this financial stage that you might experience the added responsibility of caring for your aging or elderly parents. Meanwhile, you might be looking to accelerate the accumulation of your wealth by minimizing debt and expenses, and by saving and investing for retirement and beyond. Here are some strategies to that end:

  • Continue to reduce debt. Avoid and eliminate high-interest debt first. This typically includes high-interest credit cards, personal loans and store cards. Remember that although a mortgage for your home might be the largest debt you have, it’s probably the “cheapest” debt in terms of the interest rate.
  • Find ways to spend less and earn more.
  • Make room in your budget to save and invest more, whether in the stock market or other avenues, in order to help accelerate your financial growth.

Wealth Strategies as You’re Nearing Retirement

When you’re within 5-10 years of your life transition into retirement, your financial focus will likely switch once more. You’ll still be accumulating wealth for as long as you are in your career stage. And, by now, you may be earning more than ever. Nonetheless, you might need to adopt more conservative investment strategies, as your time to recover any losses before retirement is quickly narrowing.

Also, around this time, you’ll need to start thinking about whether your savings, pensions and insurance arrangements will provide enough coverage for any eventualities. As such, your focus might begin to lean toward protecting what you’ve built, although protection is critical at every life stage.

Safeguarding Your Wealth Against Risk

As you navigate your finances through various life stages, it is important to take measures to protect yourself and your family against various risk vehicles. The specific approaches, strategies and products that are appropriate for you will depend on your unique situation, but here are a few protection strategies that can be useful for nearly every household, at any life stage:

  • One key, first line of defense is to establish an emergency fund. Work toward accumulating and maintaining between two and six months’ worth of expenses to act as a financial cushion. In the event of an unexpected financial setback, such as job loss or disability, you won’t have to turn to debt to get you through.
  • Secure adequate insurance policies to cover eventualities, including death, disability and long-term care. Unexpected events can have long-term, detrimental effects on your family’s financial well-being. But, adequate coverage can shield you from the potential financial effects these risks present.
  • If you are married, although it’s an uncomfortable topic, you might need to consider the possible ramifications of divorce. How might you split your separate and joint assets? Consider any other financial implications you and your dependents could face in the event of a separation or divorce.

Transitioning into Distributing Your Wealth

Once you reach retirement age, your expenses may decrease as, ideally, you will have paid off your mortgage, your children’s education, and, hopefully, any other debt. At this stage, you’ll likely be concerned about the ability to maintain your lifestyle all throughout retirement.

What are the financial life cycle stages of retirement? Most people pass through two to three stages:

  • Early retirement: These are also often referred to as the “go-go” years, where you’re likely active and independent.
  • Later retirement: These years are often referred to as “slow-go” or “no-go” years, as your health, activity and independence may start to decline.

These types of transitions often signal us to turn to yet another financial strategy, which is the distribution of wealth. Distribution strategies are often two-pronged, including a drawdown strategy and an estate planning strategy.

Drawdown Strategy

Planning effective, tax-efficient drawdown strategies is key to maximizing the potential of your lifetime income. An experienced financial professional can help you determine the optimal order and timing of your withdrawals. Meanwhile, securing adequate insurance policies, shifting to conservative investments, and other structures can help safeguard your desired lifestyle for retirement.

Estate Planning Strategy

In addition to your own, you might also begin looking at your family’s financial future. While estate planning is important at any life stage, as it ensures your wishes concerning your family and finances are honored in the event of your untimely death, estate planning at this stage is also focused on effective wealth distribution strategies.

It’s at this stage that you need to plan out the transfer of any assets to your spouse or partner, children, or other individuals or entities. Having a comprehensive estate plan can help reduce the administrative, financial and tax burdens left on your loved ones and beneficiaries.

Hopefully, this guide will help you make some proactive decisions for navigating the stages of your financial life cycle, and, hopefully, you have picked up some ideas on what to focus on right now and in the future.

Navigating these transitions can be challenging. For specific advice and best-fit strategies through various life transitions and stages, be sure to seek the services of appropriate, qualified professionals in each field.

This material was developed and prepared by a third party for use by your Registered Representative. The opinions expressed and material provided are for general information and should not be considered a solicitation for the purchase or sale of any security. The content is developed from sources believed to be providing accurate information.

For a comprehensive review of your personal situation, always consult with a tax or legal advisor. Neither Cetera nor any of its representatives may give legal or tax advice.

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