In our last blog post, we introduced a 4-phase-based framework to look at save and invest for retirement. Now we will look at the details of each phase, we will discuss the key concern and the actions to take for each of the 4 phases.
Preparation Phase
In the Preparation phase, one's earning ability is limited, after spending, there is very little left for anything else, even with compound growth and long time horizon, the saving at this stage has very limited impact in the future.
But that doesn't mean there is nothing to do when it comes to retirement planing. In fact, this is a foundation building phase. The key concern is to find ways to increase one's earning potential down the road.
Key actions to take:
Learn new skills that could help your future career development, learn investment basics so you are ready to invest when money becomes available, explore ways to get a side gig.
Saving Phase
In the Saving phase, one's earning has reached a level that after all the basic spending, there is a meaningful amount left to invest for the future. The key concern here is not to spend all you have, it's time to start building your nest egg now, and let time help your portfolio grow.
Key actions to take:
Develop a good habit to set aside a fixed amount each month to invest for your retirement. There could be many temptations in life that you could easily spend all your earnings, but the knowledge and skills you have learned in the Preparation phase should help you understand that you need to save for tomorrow, consistently, starting from now.
Accumulation Phase
In the Accumulation phase, your saving has reached a stage that most of your portfolio's annual growth comes from your past investment, rather than the new money you put in each month or year now. Of course this will take at least a decade, if not more, time to reach this phase. But at this phase, the key concern is to maximize your portfolio's growth, not how to cut spending or find ways to save!
Key action to take:
Learn basic portfolio building skills, even a small percentage improvement in return now will lead to huge benefits down the road. You need to ensure your portfolio is optimized and diversified for growth, with appropriate risk control.
Risk Management Phase
In the Risk Management phase, you are close to retirement time, the goal is no longer to keep saving or keep growing the portfolio, instead, the key concern is risk management, not to quickly lose your lifetime saving in a major market downturn which is bound to happen once a while!
Key action to take:
Pay extra attention to your portfolio's risk exposure, reconstruct the portfolio with safety first, with modest growth as the goal, because in the end, your retirement life could stretch several decades, a modest growth is still needed.
In Conclusion
A person's journey towards retirement could include 4 phases: prepare, save, grow, and manage the retirement portfolio saving and investing. If you missed or late in any phase, you need to catch up, are you on the right track?
Preparation Phase
In the Preparation phase, one's earning ability is limited, after spending, there is very little left for anything else, even with compound growth and long time horizon, the saving at this stage has very limited impact in the future.
But that doesn't mean there is nothing to do when it comes to retirement planing. In fact, this is a foundation building phase. The key concern is to find ways to increase one's earning potential down the road.
Key actions to take:
Learn new skills that could help your future career development, learn investment basics so you are ready to invest when money becomes available, explore ways to get a side gig.
Saving Phase
In the Saving phase, one's earning has reached a level that after all the basic spending, there is a meaningful amount left to invest for the future. The key concern here is not to spend all you have, it's time to start building your nest egg now, and let time help your portfolio grow.
Key actions to take:
Develop a good habit to set aside a fixed amount each month to invest for your retirement. There could be many temptations in life that you could easily spend all your earnings, but the knowledge and skills you have learned in the Preparation phase should help you understand that you need to save for tomorrow, consistently, starting from now.
Accumulation Phase
In the Accumulation phase, your saving has reached a stage that most of your portfolio's annual growth comes from your past investment, rather than the new money you put in each month or year now. Of course this will take at least a decade, if not more, time to reach this phase. But at this phase, the key concern is to maximize your portfolio's growth, not how to cut spending or find ways to save!
Key action to take:
Learn basic portfolio building skills, even a small percentage improvement in return now will lead to huge benefits down the road. You need to ensure your portfolio is optimized and diversified for growth, with appropriate risk control.
Risk Management Phase
In the Risk Management phase, you are close to retirement time, the goal is no longer to keep saving or keep growing the portfolio, instead, the key concern is risk management, not to quickly lose your lifetime saving in a major market downturn which is bound to happen once a while!
Key action to take:
Pay extra attention to your portfolio's risk exposure, reconstruct the portfolio with safety first, with modest growth as the goal, because in the end, your retirement life could stretch several decades, a modest growth is still needed.
In Conclusion
A person's journey towards retirement could include 4 phases: prepare, save, grow, and manage the retirement portfolio saving and investing. If you missed or late in any phase, you need to catch up, are you on the right track?
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