Have you ever heard of The Money Cycle? The Money Cycle is something that we all go through during our lifetime. There are three phases: accumulation, preservation, and distribution.
The accumulation phase starts early in life. When you are accumulating assets, you are typically willing to take more risks with this money. Let’s face it, you’re working, and you are going to be working for a long time. If you have losses, or if the market crashes, there is time to make your money back before you enter the second phase – the preservation phase.
In the preservation phase, you start to preserve some of the assets that you’ve accumulated throughout your lifetime as you get closer to your retirement goals. In this phase, there’s less time to make mistakes with your money or to experience major volatility, because you’re going to need this money sooner rather than later.
Taking this step prepares you for the third and final stage: distribution. This phase is for both distribution to yourselves in retirement, and to your family upon your passing. This is when you begin to draw from what you’ve accumulated and preserved and start taking an income from your savings and investments.
The biggest mistake that I see people making is that they go directly from the accumulation phase into distribution. They continue to invest as if they are preparing for retirement a long way out, when they are actually already retired or about to retire. The problem with this is that the market may have big corrections, as it always does, when you’re already taking distributions. Then, you’ll essentially be forced to sell your investments for income when the market’s down. You can never make that money back and you could deplete your savings much faster as a result. This is called Sequence of Returns Risk, and it’s how you risk running out of money later in life.
What’s the solution? You need to preserve A PORTION of your assets as you approach retirement. The best way to do this is called the Bucket Planning Process. This process will help you to look at distribution in terms of money you will need now, soon and later.
In our next segment, we’ll discuss the Sequence of Returns Risk in detail, and then we’ll show you how to develop your own bucket plan solution.
In the meantime, if you’d like help building your own retirement roadmap, just call the office at 513-942-8961 and schedule an in-person or virtual appointment. We serve clients throughout the US and we’d be happy to help you, too.