The Backside of Peak Earnings Years

Regarding money and investing, it is easy to think about your life in two chapters—Chapter One is the Accumulation phase.  As you enter the workforce, you set aside money in investment and retirement accounts, savings accounts, and house fund accounts, you buy insurance, and generally build your wealth.  As you get older, usually starting in your mid-50s, you begin to think about the next Chapter—the Distribution phase.  If you haven’t saved enough at this point, it is time to double and triple up your savings and take a hard look at your expenses.  Most of our clients are good savers, so preparing for the Distribution phase is more about organizing and putting into place a plan for how you will live comfortably on an income outside of a monthly salary.  Helping our clients prepare for this part of their life is one of the most valuable services we provide. 
 
Step One:  Get Real About Your Expenses.  When making a lot of money, it is easy to increase the expense side of the ledger because you can outpace expenses with income.  But as you move to the Distribution phase, it is time to look hard at how you spend your money.  A simple way to start this process is just to look at how much money you have left over at the end of each month.  After tracking that for a few months, you will have a good baseline of what your monthly expenses are.
 
Step Two: Look at All Sources of Income.  At this point, you want to take an inventory of all the different sources of income, from Social Security to pensions from current or previous employers to real estate income properties, to dividend or Trust income.  Think about how long you may want to work and what you can reasonably expect to earn.
 
Step Three:  Where is the Money?  Previous generations were notorious for squirreling away money in various banks, savings bonds, and even under a mattress.  In fact, we once had a client with well over 100 EE savings bonds.  For years, we helped his heirs find, re-register, and liquidate the bonds.  Today, most accounts are online and accessible.  But you would be surprised at how many long-forgotten 401k accounts exist.  We will want to pull all these accounts together in an organized fashion so we know where they are, how much is in them, what your total asset allocation looks like, who the beneficiaries are, etc.  These accounts will soon become a source of income for you, so it is better to pay attention to them actively.
 
Step Four:  Work with your Riggs Advisor on a Cash Flow Analysis.  Several years ago, we connected with a technology company in Maryland on a cash flow analysis program.  We were their first institutional client, and we met with them regularly to give feedback on improvements.  We use this program to help our clients visualize what their cash flow will look like during the Distribution phase.  We pull together all the income, expenses, and asset information, and then through this program, we build out the cash flow analysis that will show you how long your asset base may last, an optimized way to withdraw the assets to reduce your taxes, and a structure to replace your monthly salary.
 
Armed with this information, you can begin to decide when to retire, what your life in retirement may look like, and how the asset base that you spent your life building will serve you in this next chapter of your life.  Entering the backside of your peak earnings years can be scary but armed with a useful plan with your data and information, you can approach the next chapter with confidence.