Purpose

This assignment is intended to help you learn to do the following:

• Apply the financial life cycle concept to retirement planning strategy.
• Compare retirement saving strategies.

Overview

People's goals change throughout their lives. Although many of these changes are due to unexpected events, the majority are based on a financial life cycle pattern. The image below illustrates an example of a financial life cycle.

Looking at this figure and thinking about what your own financial life cycle may look like allows you to foresee financial needs and plan ahead. Consider retirement. If you are a college student, retirement may be the furthest thing from your mind; however, if you think about your financial life cycle, you will realize that you need to make retirement funding one of your first goals after graduation. The first 17 or 18 years of your life tends to involve negative income. The first stage can be last for decades, and centers on the accumulation of wealth. For most people, this period continues through their mid-50s.

The second and third stages are shorter. During the second stage, which for some people may begin in their early 50s, financial goals shift to the preservation and continued growth of the wealth you have already accumulated. In the last stage, during your retirement years, you will be living off your savings. Your concern will be making sure you do not run out of money.

Now you have to consider, "Should I spend or save? When and how shall I spend? When and how shall I save?"

Action Items

1. Make sure that you have completed the Module 5 Preparation before you start working on this assignment.
2. Read the following quote:
   • As the baby boomers move inexorably closer to retirement, many have lamented the plight of the generation, which appears to have dramatically under saved and therefore is ill-prepared for retirement. Yet the reality is that given how spending fluctuates through the working years - especially when raising a family - it may be entirely normal for couples to save less during the bulk of their working years, and instead save substantially in just the final years before retirement when the cost of raising children winds down. In turn, saving in the early years can actually be less effective than reinvesting into the individual's 'human capital' and increasing lifetime earnings. And in such an environment, the real issue is not effectively saving in the early years, but instead is to proactively manage spending to ensure it does not ramp up too rapidly in the later years. Combined together, this suggests that the reality may be that back-loading retirement savings into the final years before retirement doesn't mean baby boomers are 'behind' but instead that they have been following a remarkably normal and even 'optimal' path! --Michael Kitces
3. Initial Post (by Thursday):
   1. Post your initial response to the following questions:
      • Have we been too focused on saving in the early working years? Do you agree or disagree with Kitcess statement? Explain in detail.
      • Is the reality that baby boomers have been simply following the normal progression, where savings is loaded into the later years when family expenses decline and earnings peak?
      • Does the focus need to shift from steady savings to a steadier path of spending? What are your thoughts?

Purpose

This assignment is intended to help you learn to do the following:

• Apply the financial life cycle concept to retirement planning strategy.
• Compare retirement saving strategies.

Overview

People's goals change throughout their lives. Although many of these changes are due to unexpected events, the majority are based on a financial life cycle pattern. The image below illustrates an example of a financial life cycle.

Looking at this figure and thinking about what your own financial life cycle may look like allows you to foresee financial needs and plan ahead. Consider retirement. If you are a college student, retirement may be the furthest thing from your mind; however, if you think about your financial life cycle, you will realize that you need to make retirement funding one of your first goals after graduation. The first 17 or 18 years of your life tends to involve negative income. The first stage can be last for decades, and centers on the accumulation of wealth. For most people, this period continues through their mid-50s.

The second and third stages are shorter. During the second stage, which for some people may begin in their early 50s, financial goals shift to the preservation and continued growth of the wealth you have already accumulated. In the last stage, during your retirement years, you will be living off your savings. Your concern will be making sure you do not run out of money.

Now you have to consider, "Should I spend or save? When and how shall I spend? When and how shall I save?"

Action Items

1. Make sure that you have completed the Module 5 Preparation before you start working on this assignment.
2. Read the following quote:
   • As the baby boomers move inexorably closer to retirement, many have lamented the plight of the generation, which appears to have dramatically under saved and therefore is ill-prepared for retirement. Yet the reality is that given how spending fluctuates through the working years - especially when raising a family - it may be entirely normal for couples to save less during the bulk of their working years, and instead save substantially in just the final years before retirement when the cost of raising children winds down. In turn, saving in the early years can actually be less effective than reinvesting into the individual's 'human capital' and increasing lifetime earnings. And in such an environment, the real issue is not effectively saving in the early years, but instead is to proactively manage spending to ensure it does not ramp up too rapidly in the later years. Combined together, this suggests that the reality may be that back-loading retirement savings into the final years before retirement doesn't mean baby boomers are 'behind' but instead that they have been following a remarkably normal and even 'optimal' path! --Michael Kitces
3. Initial Post (by Thursday):
   1. Post your initial response to the following questions:
      • Have we been too focused on saving in the early working years? Do you agree or disagree with Kitcess statement? Explain in detail.
      • Is the reality that baby boomers have been simply following the normal progression, where savings is loaded into the later years when family expenses decline and earnings peak?
      • Does the focus need to shift from steady savings to a steadier path of spending? What are your thoughts?