The following segment gives a brief overview of the various economic stages of life a wealth management client will pass through. Wealth managers who have been in business for many years will have a feel for these stages of life and the important issues surrounding each one. This segment provides a very useful categorization of the life stages. Each stage has an approximate age in brackets, but it is worth noting that depending on the individual, the country they reside in, their career, etc., these ages could vary and are not meant to be hard and fast rules about when each stage begins and ends.
- Education (18+): This stage begins as soon as an individual begins attending a university, trade school, or some other apprenticeship that will help them improve their earning potential. This stage is a low point in financial capital for an adult's life cycle and, hopefully, the peak of human capital after the training has been completed.
- Early Career (18 -33): This stage is characterized by entering the workforce. Many at this stage also begin to marry and start families. This often makes savings tough. Family members are highly dependent on one or two individuals' human capital to fund expected future consumption during this phase because human capital represents such a large proportion of total wealth.
- Career Development (33-50): This phase is often a time of specific skill development within a given field, upward career mobility, and income growth. In this phase, expenses for college are typically accumulated, as well as an accumulation for the children's college educations. Concern heightens about retirement income planning and financial independence. In addition to education and retirement goals, higher earners will begin to build wealth and may make large purchases, such as a vacation home. The amount of retirement savings increases more rapidly during this phase than during the early part of a career.
- Peak Accumulation (51-60): In this phase, an individual reaches their full earnings potential. Peak accumulators are often concerned about minimizing taxes, given higher levels of wealth and income. During this phase, career risk may also be greater since it may be more difficult for an individual to find another job with the same salary if they lose their job.
- Preretirement (60-67): This is the lowest point of human capital, which should have been converted into financial capital by then, which is at its highest level ever at preretirement. It is common for people in this phase to restructure their portfolios in order to reduce risk and consider investments that are less volatile. In addition, retirement plan distribution options are discussed in detail, including their ramifications for tax planning.
- Early Retirement (65+): This is represented by about the first decade of retired life. Early retirees tend to focus on hobbies or less stressful work or volunteer roles. It is often emphasized that assets can be used to fund recreational activities. It could also be the beginning of a transitional phase of hardship, or the learning to live a lifestyle commensurate with savings and an earlier-than-desired retirement. It is important to note that upon entering retirement, the need for asset growth does not disappear. Due to this potential horizon, it is important to maintain an appropriate level of investment risk in a retiree's portfolio for the duration of their retirement.
- Late Retirement (75+): This can bring uncertainty about the potential lifespan for a specific individual, known as longevity risk, which is the risk that retirement could be very short or very long. The level of physical activity and mobility typically declines during this phase. It is possible for some individuals to experience a series of physical problems that deplete their financial asset reserves. You might make financial or memory care mistakes if you suffer from cognitive decline. Any stage of financial life should consider two additional concerns. First, depending on the family situation, the need to provide for long-term health care may become apparent. It may be necessary for some people to devote an extended period of time to caring for their parents or a disabled child. 
Question
Which of the following stages was mentioned as being the typical peak of savings for a child's university or college tuition?
- Early Career.
- Career Development.
- Peak Accumulation.
Solution
The correct answer is B.
The career development stage is the height of savings for future generations' education.
A is incorrect. Early career generally has competing savings needs such as a new home, wedding, infant care expenses, etc. which present a more urgent spending need.
C is incorrect. Peak accumulation may be too late, as the individual in this phase may already have children old enough to graduate from universities and already entered into the workforce. Peak accumulation has a typical focus on savings for funding a desired lifestyle in retirement since that is the next major stage a peak accumulator will enter.
Reading 9: Risk Management for Individuals
Los 9 (c) Discuss the financial stages of life for an individual