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The Key Differences Between the Accumulation and Distribution Stages of Life

The Key Differences Between the Accumulation and Distribution Stages of Life

January 26, 2018

At Lutz & Associates, we work with a number of individuals, families, and business owners. They’ve worked hard to attain their savings and they want to ensure it is protected for the future so they can confidently transition into retirement on their terms. We spend much of our time helping pre-retirees transition from the accumulation of assets to the distribution of assets all while managing the risks that are unique to retirement.

One of the biggest differences between the two phases is that, during your accumulation years, the goal is to turn your cash flow into your net-worth, while in your distribution years, this shifts to turning your net-worth into cash flow. Let’s review why.

Rate of Savings Versus Rate of Return

During your accumulation years, your rate of savings is more important than your rate of return. The goal is to turn your cash flow into net-worth by saving 15-20% of your gross income into appropriate investments that match your risk tolerance, time horizon and liquidity needs.

One reason why is that, no matter how savvy investment platforms and financial planning software gets, we’ll never be able to predict or control what the markets do. It’s dangerous to depend on a high rate of return when it comes to your investments. We saw this happen in the 90s when all people needed to do was to keep their present retirement accounts or investment accounts fully invested in the booming stock market and there would be adequate money to retire. This actually encouraged a low savings rate.

At Lutz & Associates, we believe that “high risk equals high risk," and the idea of chasing rates of return has promoted low rates of savings. Rather than depending on riskier investments in hopes of securing a higher rate of return, we believe it’s more appropriate to focus on the appropriate percentage of income to save. It’s also important to diversify your investment strategy between tax-deferred, taxable and tax free investments. By doing so, you will be in a position of choice when it comes time to turning your net-worth into cash flow.

Shifting to the Distribution Phase

Moving from the accumulation phase to the distribution phase of your life takes a specialized approach in risk management and income planning, as you’ll focus less on building your net-worth and more on turning that net-worth into cash flow so you can maintain a sufficient income during retirement.

After spending years of hard work saving for retirement, it becomes time to address financial planning issues like when to take Social Security and planning properly for healthcare, long-term care and other common retirement risks.

Longevity and sequence of returns considerations are unique during this phase as well. For example, before you retire, you’ll want to consider how the sequence of returns could impact your portfolio’s value during distribution. When you start withdrawing, the sequence of negative and positive annual returns may make a bigger impact on how long your assets last compared to the average annual rate of return over the investment’s lifetime.

Other risks to consider are inflation, interest rate variations, tax law changes and more. We think developing a plan that provides “paychecks” (guaranteed income) and “play-checks” (variable income) offers the most balanced approach and delivers the most confidence in your ability to retire.

Do You Have 20 Minutes to Spare?

What kind of retirement do you envision having? When can you retire and what lifestyle can you enjoy? In less than 20 minutes, I can help you visualize your retirement in a whole new way with the Ready-2-Retire tool. You’ll be able to create a personal retirement profile you can reference whenever you need to make decisions about your retirement.

Complete your Ready-2-Retire profile to get started. Afterward, we can schedule a meeting to review your results and I can answer any questions you have, as well as discuss how you can pursue the retirement of your dreams.

About Carl

Since 1999, Carl Lutz has served more than 400 families and business owners in the area of building and protecting wealth. Today he spends much of his time helping pre-retirees transition from accumulation to distribution, in conjunction with serving business owners in the areas of estate and succession planning. Along with nearly two decades of experience, he has received the "Advanced Financial Planning" designation, the Chartered Financial Consultant® (ChFC®), signifying his comprehensive and in-depth knowledge of financial services. To learn more about Carl, visit or connect with him on LinkedIn.

Carl Lutz is a Registered Representative and Financial Advisor of Park Avenue Securities LLC (PAS). OSJ: 600 DELAWARE AVENUE, BUFFALO, NY 14202, 716-817-7109.  Securities products and advisory services offered through PAS, member FINRA, SIPC. Financial Representative of The Guardian Life Insurance Company of America® (Guardian), New York, NY. PAS is an indirect, wholly-owned subsidiary of Guardian. Lutz & Associates is not an affiliate or subsidiary of PAS or Guardian. Guardian, its subsidiaries, agents, and employees do not provide tax, legal, or accounting advice. Consult your tax, legal, or accounting professional regarding your individual situation.

This material was prepared by an independent third party.