The 4 Stages of Your Financial Life Cycle and How to Invest for Each

From early career to retirement, here's how to save and invest during each of the four stages of your financial life cycle.

ByBecca Stanek

Updated Jul 25, 2023

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A recent study by online resume builder Zety found that 40% of Americans are more afraid of retirement than of death—but there's no reason to be scared if you have a plan in place. With a general grasp of the four stages of your financial life cycle, you can know what to expect, as well as what to prioritize financially and how to invest to get ready for what's to come. We walk you through each stage—from wealth accumulation to wealth distribution—so you have a roadmap in hand to guide you through your financial future.

Stage one: Accumulation of wealth (early career)

The initial stage of your financial life cycle occurs during your first few years in the working world. You may have just graduated from college, and your income is likely relatively low, perhaps not entirely supporting your spending, which could lead to debt. It's unlikely you have any dependents at this stage. You may be starting to accumulate assets for the first time, like buying your own car.

What should your financial priorities be?

During this stage, it's critical that you make it a priority to pay off any debt and work on building your credit to put yourself on stable financial footing for the stages to come. You should also make an effort to snag salary increases whenever possible.

Without the expense of dependents, this is likely a great time to put your savings into overdrive and expedite the process of wealth accumulation. For instance, you may consider bolstering your emergency fund or saving for a house down payment. If you're wondering where to park your savings, a high-yield savings account like the one offered at Marcus by Goldman Sachs is always a good option.

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How should you invest?

Your early career is also the time when you might dip your toe into investing. Your initial priority should be to max out your tax-advantaged retirement accounts—try to reach the point where you can invest at least 15% of your pre-tax income. 

While you might think you have time to wait before getting started because you still have years left to go in your career, it's wise to start sooner than later to take advantage of compounding. When you invest, keep your eye towards long-term growth.

Stage two: Growth and management of wealth (mid-career)

Stage two of your financial life cycle is when you're starting to hit your stride both in your career and financial life. Your finances have likely begun to stabilize, with any high-interest debt paid off and a solid emergency fund saved. However, you might be starting to have dependents, which can drive up your expenses, though your income is likewise going up. Investment-wise, you're hopefully funding your tax-advantaged retirement accounts and may be starting to branch out with at least a couple other investments, maybe a mutual fund or some bitcoin.

What should your financial priorities be?

At this point, your top financial focus should be on growing your wealth—both saving for your kids and investing for retirement. It's important to begin formulating your plan for retirement to ensure you have an exit strategy as you continue progressing in your career. You might also be considering other financial goals at this time, such as buying a house or saving for your child's college education

Given that you may have kids or ample assets accumulated at this stage, you may consider creating a will or setting up a trust to ensure your financial affairs are in order should anything happen.

How should you invest?

Your second stage of your financial life cycle is when you'll want to kick your investments into growth mode. Now that you have the financial basics covered, yet are also still 20 to 30 years out from retirement, you can afford to take a little more risk and invest more aggressively.

As you build out your portfolio, it's important to make sure you're being thoughtful about creating an asset allocation that aligns with your risk tolerance and time horizon. Diversification is also critical so you're not putting all of your eggs in one basket, so to speak. You might branch into investing beyond your retirement accounts, whether that's opening a college savings plan for your kid or adding different types of investments to your portfolio. Depending on your goals and how much risk you're comfortable assuming, you could add mutual funds or ETFs to your portfolio, invest in individual stocks, acquire real estate or look into alternative investments.



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Because you're now more actively managing your wealth as opposed to accumulating, it's helpful to make sure your investment goals are clearly defined and that you're fine-tuning your portfolio accordingly, with regular rebalancing. A financial advisor could be helpful at this stage.

Stage three: Preservation of wealth (late career)

As you enter stage three of your financial life cycle, your late career, your income likely exceeds your expenses as your dependents move out on their own and your spending decreases. At this point, you're well-established in your career and retirement is on the horizon.

What should your financial priorities be?

Wealth preservation is the primary financial focus of the third stage of your financial life cycle. You'll want to start shifting your portfolio away from growth, eliminating any remaining debt by paying off the last of your mortgage and making sure you have a concrete retirement plan nailed down. This includes looking at healthcare and insurance options for when you're retired.

Additionally, this is the point at which you will want to start thinking about how you'll pass your wealth on. Make sure your will is in order, and consider the legacy you'll want to leave behind.

How should you invest?

As you shift out of growth mode and into preservation mode upon nearing retirement age, you might consider selling off riskier investments and replacing them with low-risk assets. While you won't want to take on too much risk to avoid losing the wealth you've worked so hard to accumulate, at the same time, it's important not to hit the brakes so hard that your investment strategy becomes too conservative to reach your retirement goals. Keep an eye on rebalancing your portfolio at this stage so it aligns with your risk level and thus your retirement goals.

Stage four: Distribution of wealth (retirement)

The fourth and final stage of your financial life cycle is retirement. Your working days are over, and you've officially entered your golden years. 

With your income from work likely at $0, you're now living off your retirement accounts (assuming you're of age to take distributions) and either selling off your investments or taking distributions from your savings or investment accounts. Your spending might be comparable to what it was in the previous stage, or it could be even a bit lower, as you might be spending less on your dependents and may have paid off your mortgage.

What should your financial priorities be?

In this stage, you'll want to keep an eye on managing your retirement funds to ensure they last throughout the remainder of your life. This might mean creating a budget and sticking to it, or committing to living off of a fixed income.

Now that you are in the final phase of your financial life cycle, this is the time to make sure you're totally set up to pass off any wealth you have to your loved ones in a tax-efficient way. Make sure your will is up-to-date. It could be helpful to meet with someone to discuss your estate plan.

How should you invest?

Investing in stage four of the financial life cycle is all about playing it safe and strategically cashing out. You'll want to shift any risky investments still lingering in your portfolio to safer ones.

It's important to make sure you have a plan for how to utilize your investments to support yourself in retirement. For instance, you might formulate a plan to sell off your investments gradually, or you could commit to living off of dividends you earn or rental income from a property you own.

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