The 3 Phases of a Financial Plan

{4 minutes to read}

Today, I want to talk about the three phases of a financial plan:

Phase One: Wealth Accumulation. 

Phase Two: Wealth Distribution.

Phase Three: Wealth Preservation.

Phase One: Wealth Accumulation

Most people spend a good amount of time in this phase — from the time they start earning money to the time they stop working. They are faced with a lot of options and choices as to where they should place their money so that it accumulates and grows.

Phase Two: Wealth Distribution

After Phase One, when people have stopped working, hopefully, they’ll have adequate income, and be set up properly for retirement. During this phase, people have to rely on things like 401(k)s, pension plans, Social Security, and other personal savings to generate income for a span of time that might extend from age 65 to 100 or even later.

Phase Three: Wealth Preservation

The third phase is the legacy value that we leave to our heirs, our spouses, our children, and our loved ones.

What I have found over the years is that most people are only focused on the accumulation of wealth. They are not necessarily doing the things necessary to provide the best distribution so that they are in the best possible situation at retirement.

With regard to wealth preservation, most people accumulate their wealth in Phase One, by saving into retirement plans, 401(k) accounts, and other qualified plans like IRAs —also, if they bought a home, maybe the equity in that home will add to their accumulated assets — but neither of those two things is the best for wealth distribution. These 2 assets are the ones that make up a high percentage of the assets many people have at retirement. What I mean by that is:

A) When you take money out of your 401(k) or pension, you have to pay ordinary income tax on any of those distributions. That could take away 20%, 30%, 40%, or potentially even 50% of each distribution that you take.

B) If you accumulated quite a bit of equity in your home; let’s say I have a house worth half a million dollars, with no mortgage because I paid it off so there is no income that would be generated from that property. (I have a saying, “You can’t eat the drywall.”) You could actually do a reverse mortgage and possibly access that equity, but many do not like that idea.

This is why we say that for the most part, those two assets are not the best for the wealth distribution phase. They look great during the wealth accumulation phase but not great in the distribution phase.

The purpose of this blog is to get people to understand that they must, while in the wealth accumulation phase, think about how their decisions will impact the next two phases of their financial life: wealth distribution and wealth preservation.

The planning that we do at Strategic Wealth Advisor Network helps people understand how to make decisions today, while also positioning themselves in the best possible place for tomorrow. If you’d like to learn more about how comprehensive planning can help you in each phase of your financial plan, send me an email, or give me a call. I would love the opportunity to discuss your financial plan with you.

Registered Representative offering Securities through American Portfolios Financial Services, Inc. (APFS) Member FINRA/SIPC. Investment Advisory Services are offered through G&G Planning Concepts, Inc. which is not affiliated with APFS.  Strategic Wealth Advisors Network and Gassman Financial Group are not affiliated with APFS.

Any opinions expressed in this forum are not the opinion or view of American Portfolios Financial Services, Inc. (APFS) or American Portfolios Advisors, Inc.(APA) and have not been reviewed by the firm for completeness or accuracy. These opinions are subject to change at any time without notice. Any comments or postings are provided for informational purposes only and do not constitute an offer or a recommendation to buy or sell securities or other financial instruments. Readers should conduct their own review and exercise judgment prior to investing. Investments are not guaranteed, involve risk, and may result in a loss of principal. Past performance does not guarantee future results. Investments are not suitable for all types of investors.

This material is for informational purposes only. Neither APFS nor its Representatives provide tax, legal, or accounting advice. Please consult your own tax, legal, or accounting professional before making any decisions. American Portfolios Financial Services, Inc.(APFS) and American Portfolios Advisors, Inc.(APA) are not affiliated with any other named business entities mentioned.