Retirement planning: 3 phases of investing

John M. Davis, Retirement Insights & Educational Programs Director, Dreyfus

Retirement portfolio

March 2018

Key Points

  • Like many Americans, retirement may be the most important investment goal of your life
  • Your investment perspective should evolve as you approach and transition into retirement
  • A financial advisor can help you find the most effective path to a secure retirement

Most of us dream about the day when retirement will finally arrive. We imagine days spent relaxing, enjoying our hobbies and spending quality time with family and friends. But one factor many people overlook is how our investment perspective and mindset must shift once our goals move from wealth accumulation to income generation.

Changing your investment perspective

As you prepare for retirement, it’s important to consider key challenges you may face. These could include: a retirement that needs to be funded for two or three decades or more due to a longer life expectancy, the lack of fixed income sources like traditional pension plans, and the need to keep pace with inflation over the course of your retirement. An effective way to address these challenges in the years leading up to retirement is to plan ahead.

A successful transition to retirement can be enhanced by preserving your accumulated wealth, while also developing a strategy to generate cash flow for an extended retirement. 

Achieving a confident retirement

Having an investment strategy in place can help you reach what may be your most important goal - a confident retirement. To help you get there, your advisor can work with you to create a plan that addresses:

  • Covering your essential needs – food, health, housing, transportation
  • Providing income to support your lifestyle desires such as travel or a vacation home
  • Preparing for those unforeseen events that require financial resources
  • And if desired, leaving a legacy for family and charities

Common planning considerations for retirement

Evolving your retirement investment strategy

One strategy is to manage your retirement savings through a three-phase process. Each phase has different factors and considerations, investment objectives and approaches to investing.

  1. Accumulation: The accumulation phase begins when you enter the workforce. Your primary investment goal through most of your working life is to make regular contributions to grow your wealth. That generally means a diversified retirement portfolio more heavily concentrated in equities.
  2. Transition: In the years leading up to retirement, you enter the transition phase. At this time, you want to consider taking a more balanced approach to your investments while scaling back the level of risk in your portfolio. Your primary investment goal during this phase is minimizing the impact of volatile market swings to help preserve capital.
  3. Retirement: Eventually you enter the phase when you are fully retired and your primary investment goals translate to supporting retirement income strategies. Your focus turns to investment strategies designed to generate income, but you also need to be able to continue to grow your assets to help future income streams keep pace with inflation.
Having a strategy in place can help you reach what may be your most important goal - a confident retirement.

Crafting your retirement income plan

A strategic retirement income plan can match your potential income to your budget over the course of your lifetime. To do this, the plan generally combines:

  • Your available sources of guaranteed income – Social Security, pensions, part-time work, and certain insurance products
  • Investments managed to address a combination of factors, including volatility, income, and possibly growth

As you approach retirement, your mix of these resources will be unique. Therefore, your plan should be tailored to optimize your resources.

Potential retirement income sources and strategies

Transitioning to retirement

Managing the transition phase is critical, and it’s important to monitor your retirement investing and income plan.

As you plan for retirement, it can be especially helpful to work with a financial advisor. While many books and websites purport to offer solutions, the fact is every person and family has a unique set of circumstances that will impact their ability to develop a retirement income plan. The guidance offered by a financial advisor can help you develop a plan that is tailored to your unique needs and resources.

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