The 5 Stages of Building Wealth

At The Retirement Planning Group, we’re usually not big fans of “rules of thumb,” especially regarding financial planning. Mainly because financial planning is so tied to each person’s unique set of circumstances. What works for some may not work for others. As a result, this often leaves people wondering where they stand in their financial well-being or if they are on track. We’ve outlined the 5 stages of building wealth and included some benchmarks.

Wealth Building Stage 1 – Getting Started in your 20’s

In the first stage of building wealth, there is a lot to accomplish early on. Too often, many people overlook basic steps making it much more difficult later in life to build wealth. Like building a house, we can’t achieve success without a solid foundation. The same thing applies when building wealth; you must have a solid foundation in place and create good habits. Establishing an emergency fund and developing a plan to pay off debt are two important footings for your foundation. Build a lifestyle that has you living below your means, and establish a consistent plan to save each month. Earmark at least 15% of your gross annual income for retirement savings.

Wealth Building Stage 2 – Building Momentum in your 30’s

Now in your mid 30’s and second stage, the only remaining debt you should have is your mortgage, and you should have saved the equivalent of one year’s salary between retirement savings and other savings. As families grow, saving for children’s college becomes a priority, as well as life insurance and updated estate planning documents. At this point in time, it’s essential to begin working with a financial advisor or wealth manager who can detail your goals and create a roadmap.

Wealth Building Stage 3 – Hitting your stride in your 40’s

By now, in the third stage of building wealth, the early habits and discipline of your 20’s are starting to pay off. Monthly savings is second nature and will allow you to bump up your college savings. Now is the time for more consistent meetings with your financial advisor to ensure you stay on track. Having around three times your current salary saved at this point is a great goal to work towards. 

Wealth Building Stage 4 – Big Gains in your 50’s

Now that you are in your upper 50’s and in the fourth stage, you are entering the home stretch to retirement. This is another critical stretch as this period as typically these years are your highest earning years. As you transition into empty nesters, there will be more discretionary income that can help you make big strides towards building your wealth. In this phase, it would be ideal to have a nest egg around 5 times your current salary and be close to paying off your home.

Wealth Building Stage 5 – Final approach in your 60’s

In your 60’s, as you head into retirement, you should have approximately 10 times your current salary saved. Working with an advisor is a crucial step to pinpointing what your nest egg needs to be. Now is the time to look at Social Security and begin to understand the filing options. Your estate planning documents need to be reviewed and updated. All these years, you have been in an accumulation phase, and now begins the distribution phase. It’s very important to have a detailed plan of how you should distribute your assets. Working with a financial advisor is key here because they can work with you to develop this detailed distribution plan tax-efficiently.

By following these steps and staying disciplined, you can start building wealth and set yourself up for a secure financial future. A financial advisor can help you develop a personalized financial plan and guide you toward reaching your financial goals.