In our culture, individuals have immense personal responsibility for developing and protecting their financial well-being. Since one's career is usually the primary driver for financial well-being it is not surprising that the typical life stages for financial planning tend to parallel one's career path. Recognizing these financial life stages and the associated financial planning tasks for each stage can make your own planning clearer.
While individual experience varies greatly and significantly, here are some of the very basic, generic building blocks for typical financial planning life stages.
20s: Setting Up
The focus is getting prepared, setting the stage, exploring life, and developing a personal point of view about what has meaning to you. Portfolio management is at most in bud; the priority tends to be building initial financial literacy, tending to school debt, staying out of credit card debt, and building cash reserves, the first building block for financial security.
Planning tasks include learning the logistics of daily financial life often in the context of living away from one's parents' home for the first time. Basic financial tasks include figuring out one's after-tax income, understanding when and how to pay bills, adjusting lifestyle to the budget, entering the workforce and laying the groundwork for a career. Other related activities include learning to network, figuring out a social life, exploring career options, setting up a savings program, making decisions about community, e.g. deciding whether or not to volunteer, to vote, to live abroad, and/or to participate in various groups such as alumni groups, sports leagues, and religious organizations. Dominant emotions include confusion, yearning, excitement, and ambition.
30s to early 50s: Launching Identity
Typical planning tasks include establishing one's home, family, and community life, and winnowing down one's engagement with the workforce to a more specific career path. Careers develop throughout this stage, often with twists and turns, into the fundamental building block for long-term financial security.
Personal finances get tailored to that career path. Finding the right balance between work and home, and reconciling differences with one's partner about career priorities, child-raising, in-law relations, and money issues are common threads. Finding oneself unexpectedly single at this life stage because of death, divorce, or just because of how life rolled out can also be a key issue.
In all cases, setting up a robust program for saving and investing for retirement and, if relevant, also an education fund are key. In addition, understanding and placing appropriate insurance protection is a central planning task as is learning about and tailoring income and estate tax planning to personal preferences and circumstances. Learning how to hire and work with various advisors is a common part of this stage as well. Whether you are in the paid work force or not, your human capital, i.e. how you make use of your personal gifts and what society chooses to pay you, becomes a primary driver of personal identity. Your finances increasingly reflect your values, what is important to you, and the degree to which you are envisioning and preparing for long-term financial security. You feel like a grown-up. And life is crazy busy.
Late 50s to early 70s: Building and Transitioning
This financial life stage typically includes the revelation and unfolding of the final career plateau, a concentrated effort and ability to build the long-term investment portfolio, and a gradually increasing emphasis on the value of financial security. Then, as the reality of life without an active career or children at home becomes visible on the horizon, a sense of transition and a search for meaning and structure begins anew.
With the likely passing of parents by this life stage, there can also be a more acute sense of mortality; the realization that time is limited and good health precious. Bucket lists appear. New adventures pop up as do ponderings about identity and deferred personal preferences. Volunteer work gets a fresh look as do new educational interests. The focus shifts increasingly to meaning, to what you have done in your life and what is still left to do. An increasing readiness to let go of former career pressures often gradually appears, especially if financial well-being seems assured. Relations with one's children as adults and with grandchildren take shape.
Financial planning tasks include matching personal wealth management to financial needs and preferences, perhaps including the incorporation of a recently received inheritance. Once earned income ceases, pensions and pension-like substitutes are put in place. Insurance, and income and estate tax planning strategies, are kept refreshed throughout this time period. You are deep in middle-age. Life is busy but getting a bit more orderly.
Late 70s and beyond: Consolidation & Legacy
Old age knocks on the door, triggering reflections on legacy, life and death, memories, and personal safety. The primary personal tasks increasingly include coming to terms with losses and facing down loneliness, figuring out regrets, and cultivating gratitude and forgiveness of oneself and of others.
Financial planning tasks include getting an ever stronger safety net in place as the need for help develops with respect to navigating daily finances, the medical system, and the tasks of daily living. Estate planning, including communication of end-of-life preferences, is important. Residence decisions get harder. You've become an elder, even though you remember as if it were just yesterday talking as a child with your own grandparents.
Financial planning is a life-long process of integrating personal values with the management of both human and financial capital. It unfolds right along with your life, with different aspects coming forward as appropriate with each life stage. Do you identify with any of the stages described in this blog post?
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