Many have tried to define success. One of the best definitions I have heard is “Success is the progressive realization of a worthwhile dream or goal.” Most think success occurs at a specific point in time, a destination where we suddenly arrive. Certainly, there are milestones in our lives where we achieve a worthwhile goal and are recognized for a job well done, but some become so focused on the destination that they forget to smell the flowers along the way.
They mistakenly say, “I’ll be happy when I get that new car or home,” or “I’ll feel successful when the kids finally graduate from college,” or “I’ll be happy when I retire and can finally travel.” But, happiness, true happiness often lies in the progressive realization of a worthwhile pursuit. It’s reaching each day for something you truly value, something that you hold in high regard. To have this perspective we need to take a broader view and cultivate the ability to look at the big picture. Sometimes we are looking so close we can’t see what’s really going on. It’s the old adage of running through the forest staring at the trees, but never seeing the forest. Taking the time to stand back and view our lives in a larger context can be most helpful.
This concept has importance in our economic lives. Stepping away from our financial lives to look at the bigger picture is critical. Sometimes we can be so suck in the moment that we miss key opportunities to put effective processes in place. To understand this concept more fully, let me suggest that our economic lives are comprised of three very important and distinct phases: the accumulation phase, the preservation phase and the distribution phase. Understanding these phases can greatly enhance our ability to make better decisions in our financial lives.
In the Accumulation Phase we pursue an education, work at a career, purchase a home, likely raise children, establish ourselves in a community and hopefully accumulate sufficient savings for a “happily ever after” retirement. As we enter retirement, we slowly transition to the Preservation Phase. This is a time when our objectives for growth arch toward protection and preservation of capital. We glimpse at the Distribution Phase of life and acknowledge that we lack time to make up for sustained losses. At this time, most feel an urgent need to take less risk, although I’ve observed many frozen at the proverbial market slot machine. Given our turbulent economic times, some have earned the right to go to Vegas, but most would be wise to hedge toward safety. Said another way, a migration toward contractual wealth vs. statement wealth is in order.
As we progress toward our own mortality, we enter the Distribution Phase. We think of legacy and how our wealth can intelligently pass to those we love or to a cause we care about. Conversely, some say, “I came with nothing, I am leaving with nothing!” That’s fine, but for most, a longing to pass on something of value is rooted within.
As we think about these three phases, it’s important to ask ourselves some important questions. How do our assets behave in each phase? For example, how does an IRA manifest itself in the accumulation, preservation or distribution phases? Qualified accounts with all their benefits, rules and restrictions present themselves differently in each phase. Am I living in one phase, but behaving like I am living in another? For example, am I habitually mired in accumulation thinking when I should be planted firmly in preservation with an eye towards distribution?
Am I aware that each asset class passes to the next generation differently? From a tax perspective, real property, marketable securities, annuities and/or life Insurance all pass to heirs differently. As we become more aware of these important economic phases, our perspective sharpens and we begin to make better financial decisions, often repositioning assets to achieve better alignment with our newfound perspective.
Like success in our personal lives, success in our financial lives is a process rather than a destination. With a broader perspective and better understanding of the economic phases of our lives we can better reach for our dreams and also achieve financial peace.