Planning for the Financial Stages of Life


By Isidore Ogoussan

For Tom Davis, a 25-year-old accountant living in a large Midwestern city with his wife Melanie, an administrative assistant at a law firm, life was good. A happy marriage. Two beautiful children. A stable job with the promise of advancement at the company.

Then Davis began to take stock of his life and, more importantly, began the process of planning for the financial realities ahead in a complex world. He thought of his parents and his grandparents and the “good old days” in which they lived — lifelong employment, no reliance on Wall Street volatility and the virtue of a solid account at Main Street Bank.

But he also wondered just how good those days really were. He recalled stories of the post-Great Depression years when the safest place for money seemed to be under the mattress. Family friends who lost pensions when their companies went under. Inflexible life insurance that never seemed to be valuable enough.

Maybe those days weren’t as good as his initial thinking led him to believe. So Davis began to learn about financial planning in the new good old days — in other words, today, where an array of financial products and services are available to help achieve his goals.

First, Davis thought about three key stages of financial planning:

  • Accumulation
  • Preservation
  • Distribution

He also was smart enough to realize that these stages do not begin and end abruptly, and may differ from what others would experience, but ultimately were sound guideposts to follow.

Accumulation refers to those years when a person earns the money he or she will need in the future. Think about what happens during these years:

  • That first house
  • That second house
  • The next jobs while moving up the ladder
  • Parenthood
  • Ongoing student loan debt
  • A first foray into tax- deferred retirement planning

Of course, no one should risk the financial future without including a foundation that protects those accumulation years. Often that means basic term life insurance — life insurance protection for a specific period of time such as 10, 15 or 20 years.

Accumulating the resources to deal with these eventualities leads to the second stage of financial planning: preservation.

Preservation (sometimes labeled “protection”) is when one starts to plan for preserving the wealth accumulated, while at the same time paying off the mortgage, sending the kids to college and starting to build for retirement. A solid financial future often rests on the ability to protect assets. Davis will need to tap into ways to accomplish these goals, with the help of:

  • Permanent life insurance (look to increase life coverage with potential cash value building vehicles such as whole, universal and variable universal)
  • Continued tax-deferred retirement planning (for example: 401(k), IRA and Roth IRA.)
  • Disability insurance
  • Plans to pay for the high cost of college tuition (529 plans)

Permanent life insurance allows for the potential to build tax deferred cash values that may be accessed via policy loans to meet additional financial needs down the road. Some term policies, including Davis’, allow for conversion to permanent policies. The couple will take this opportunity to add to their accumulation potential while continuing to build and protect their financial foundation.

Some of these choices, such as life insurance and various tax-deferred retirement plans (often with employer-matching funds) were somewhat familiar to Davis. Others were new:

  • According to the Census Bureau, nearly one in five Americans are classified as disabled. Davis had never given much thought to his number one asset: the ability to earn an income.
  • Another eye-opener was how the cost of college tuition continues to skyrocket: According to the College Board, the average cost of tuition and fees for the 2017–2018 school year was $34,740 at private colleges, $9,970 for state residents at public colleges (with $25,620 for out-of-state residents attending public universities).

Accumulating and protecting assets and building personal financial security may be accomplished with the help of a number of these tools. But after a lifetime of planning for what may come, Davis will also look forward to what some call the “golden years,” otherwise known as the “distribution” stage.

Distribution will occur when the Tom and Melanie Davis move into retirement, when their income will largely consist of the distributions they take from investment vehicles in which they’ve saved.

Prior to entering the distribution phase, the couple will need to ensure they have tightened up their financial plans. This means inquiring with an attorney about any estate planning implications they may be facing, working with an attorney to create a will and, with the help of a financial adviser, getting the most mileage out of assets such as life insurance policies.

By taking these steps, Tom and Melanie Davis may be able to increase the value of what they leave their children and ensure there are adequate funds available to pay taxes (including state and federal estate taxes if applicable), plan for final expenses and deal with any unforeseen circumstances.

Finally, the couple can have the financial freedom to live the retirement lifestyle they worked so hard to achieve. Those trips to see the grandchildren, walks on the beach at sunset — whatever they choose to do — come with a price tag. Happily, it’s one they will be able to afford.

So as Davis took stock of his family’s future, he began to layout a financial road map to take his family where it needed to go. With careful planning, help from financial professionals and an eye toward the future, he knew he could get there.

Davis will know what it’s like to experience the new good old days. And by tackling the stages of life with some careful planning in place, you can, too.

Isidore Ogoussan, ChFC, is a financial adviser with 1847 Private Client Group in Conshohocken.


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