Financial planning is an ongoing process — you should periodically review and update your client’s financial plan to ensure that it stays relevant and reflects their current financial situation and goals.
Our approach to financial goals will differ as we move through the different stages of life. The financial situation and needs of a fresh graduate who just recently entered the workforce differ from someone in their 50s preparing for retirement.
Naturally, there are some differences in how each manage their money. This is where life cycle financial planning comes into play.
What Is Life Cycle Financial Planning?
Life cycle financial planning refers to the process of identifying and managing the financial needs and challenges that arise at different stages of life, from childhood to what comes after retirement age. By understanding and preparing for the unique financial considerations of each life stage, clients can make the correct decisions to work towards a financially secure future.
There are five stages of life cycle planning:
Teenage years (13-17 years)
Young adulthood (18-25 years)
Starting a family (26-45 years)
Planning to retire (45-64 years), and
Successful retirement (65+ years)
There is also an alternative concept where the financial life cycle can be divided into three stages — distributed across the five stages of the life cycle.
Wealth accumulation: This is where your clients embrace the daily grind and put in all their work in order to build a foundation for their legacy. This stage is all about saving and planning for the future, which means this is also where retirement planning should begin.
Wealth preservation: With the groundwork done, it's time to secure things. This is the period at which an individual begins to consider retirement planning following years of wealth accumulation in their working life. During this stage, your clients re-evaluate their investments and what they want to get out of them after retirement.
Wealth distribution: The final stage is where all those savings and investments will finally pay off. For most people, this takes place during their retirement years, hence it’s vital for your clients to complete arrangements for things like estate planning and end-of-life planning.
In this article, we'll explore the five stages mentioned above and the key things to know about life cycle financial planning, including the different financial planning and wealth management approaches with respect to your client’s age and position within their life cycle.
The Five Stages of Life Cycle Planning
Teenage Years (13-17)
For most people, this stage of the financial life cycle is where they start to learn how to manage their money and plan their spending. These years are spent on learning the basics of money, finishing high school, and preparing for higher education and future employment.
While teens may not be making the most critical decisions at this age, they are learning some of the most crucial things.
Many of them work part-time jobs while in high school to help pay for things they can call their own, such as new jeans they see in the mall or the newest iPhone that’s just released.
As teens start to discover what they can achieve with their hard-earned money, they’re also faced with their first real financial decisions. They begin to ask things like “I want it, but do I need it?” as well as, “Can I afford this? How long do I need to save for this?” These are fundamental questions to understand the hows and whys of basic budgeting and saving.
Subconsciously, teens may also start understanding the basics of cash flow and why they need to do it.
It’s not a stretch to say that for many people, the teenage years are the time when people start developing their sense of responsibility and learning the worth of their own money.
Young Adulthood (18-25)
The next step in your financial journey is to gain and maintain financial independence while pursuing higher education, which may or may not involve getting a university degree or professional certification while working and building credit.
Young adults typically have more financial independence and responsibility compared to teenagers.
It might feel intimidating as you can’t afford to have as many slip-ups as in your teenage years, but it’s also an exciting time.
Depending on the person, this can also be the start of their wealth accumulation stage where they start to think about their financial future, like starting a rainy day fund and growing their investment portfolio.
In this stage, an individual’s main focus should be to gain and maintain independence, ideally by pursuing higher education while also working and building their credit card score.
The word “pursuing higher education” usually comes with the dread of having student loans and the debt that follows. However, that only applies to people who wish to work towards a bachelor’s degree or higher.
Obtaining an associate's degree or completing a trade school course is a more practical and financially sound choice for some rather than incurring significant debt by going to a university. For others, gaining a certification or taking additional classes may be sufficient.
The goal of pursuing higher education is to stand out from other job candidates and acquire valuable, in-demand skills — and that doesn’t always mean getting a bachelor’s degree.
Starting a Family (26-45)
Unlike the previous stage where your clients can coast it alone and only be responsible for themselves, some might begin to have others to think about at this stage.
Whether your goal is a house full of kids, sharing your home with your spouse, or anything in between, the biggest part of this stage is preparing for the financial responsibility that comes with having a family.
When someone starts a family or cares for their current family, they take on more responsibilities. Some of these responsibilities may be shared amongst the family, while some can mean that they’re taking care of dependents themselves.
Since your clients will be taking care of other people in this stage, it’s even more important to focus on financial planning that helps them meet the needs of their families and be prepared for the future.
Coincidentally, this is also where the wealth accumulation and wealth preservation stage meets.
Clients at this stage may want to grow their investment portfolio further. They’d look for ways to manage their investment better, reevaluate their investment strategies, and even seek out financial services to do investment management for them. They may also consider purchasing insurance to protect their assets and families, such as home and auto insurance, life insurance, and health insurance.
Planning to Retire (46-64)
As your clients approach retirement age, it's important for them to focus on financial planning that will help them achieve their retirement goals and prepare for a financially secure future.
With retirement in sight, this stage of life is the largest source of income. Children typically move out during this stage so it can be easier to save money than it was during the family stage.
Ideally, retirement planning starts when an individual gets their first career, but this is not always the case. Starting a bit late doesn’t mean they’ll “fail” their retirement. But if they’re a full-fledged adult with a family, they’ll likely start thinking about retirement more seriously.
There are a lot of things to consider when planning for retirement. The most vital among them is saving and accumulating wealth. Clients should focus on saving enough money to support themselves during retirement.
This may involve contributing to a retirement account, such as a 401(k) or IRA, and potentially seeking out other investment opportunities. They should also consider their healthcare needs and how they will be covered during retirement — which may include looking into insurance options or long-term care.
It’s also common for people to seek professional help and hire a financial professional, such as a Certified Financial Planner or Certified Financial Advisor, for their retirement planning services.
Successful Retirement (65+)
This is the calmest stage in life cycle financial planning — you’ve finally reached the time to reap what you’ve sown!
For many, this stage is also when the wealth distribution stage begins.
Since retirees will probably depend almost entirely on retirement income — such as social security and savings from when they were employed — it’s important to manage their finances carefully while enjoying their newfound freedom since this could mean their money is only going in one direction.
Get Help With Your Life Cycle Financial Planning With Asset-Map
Wealth management and financial planning is an ongoing process that follows someone from their childhood to old age.
Life cycle financial planning can be separated into five stages: teenage years (13-17 years old), young adulthood (18-25 years old), starting a family (26-45 years old), planning to retire (45-64 years old), and successful retirement (65 years old and above.)
Meanwhile, wealth management stages across a person’s life can be categorized into three stages: wealth accumulation, wealth preservation, and wealth management.
As your clients go through these stages and life changes, their responsibilities, needs, and financial capabilities are likely to shift.
If you have any clients going through transitions like the ones you see in these stages, it’s important that you’re keeping your records updated.
Asset-Map’s visual map can help you track these transitions and gaps at a glance — allowing you more time to strategize and discuss your next moves with your clients instead.
Schedule your demo today and get the details on how Asset-Map can help you stay on top of your client’s finances and give a VIP experience at scale.
