posted on July 09, 2016 21:54
There are three phases of retirement planning: Accumulation, Planning and Accumulation, and Decumulation. These phases are illustrated in the graph below.
Age 20 to 40: Accumulation It is important for you to save for retirement as soon as possible. In this phase, your objective is to save aggressively. Investment allocations will differ based on your individual risk tolerance; however, investors in this phase are generally willing to accept more risk than their older counterparts in order to achieve higher rates of return.
Age 40 to 70: Planning and Accumulation As you approach retirement, you have a better sense of how you’d like to spend it. You may want to travel, build model airplanes, or work part-time. How you plan to spend your time will impact how much you need to save to cover your income needs in retirement.
After Age 70: Decumulation In retirement, you are managing the withdrawal of your retirement savings. Your goal is to determine a draw-down strategy that helps you preserve your account value, manage taxes, protects against unforeseen expenses and, if desired, provides for your heirs. During this period you’ll be required to take minimum distributions (RMDs) from your tax-sheltered retirement accounts, like a 401(k) plan. Such distributions are generally required to begin by April 1 of the calendar year following the year you turn 70½ and then continue annually thereafter, but this requirement may vary depending on your circumstances.
When it comes to retirement planning remember that you’re in control. You can save more, spend less, or adjust your investment strategy. By doing some or all of these things you may be able to positively impact your retirement account balance both as you prepare for and enjoy retirement.