When it comes to saving for retirement, many of us have no clue from where to start. But those who plan reap the benefits in their golden age.
This is the time when you’re supposed to live a life free of financial worries; you’re supposed to travel a lot and help your family and friends whenever they need. But if you’ve not saved enough for your post-retirement life, the risk is that you might still be forced to work, or you have to compromise on the quality of your life.
We should all do our best to avoid this outcome by seriously planning for our retirement and setting some realistic saving goals.
Today, I’m going to outline three simple steps that can put you on a path to building your nest egg. If you follow these steps with a disciplined approach, you’ll likely to accumulate enough wealth for you to live a comfortable retirement life.
Start saving early
Time is money. And that’s particularly true when it comes to saving for your retirement. The early you start, the more you’ll save, and the more you will earn on your savings.
One of the biggest factors that will make this saving journey smooth is how early and how aggressively you start saving. If you’re able to put aside a good chunk of your income for your retirement portfolio, the chances are that you’ll retire rich.
If you invest a set percentage of your income, then your contributions should increase as you earn more. What percentage of your income should go into your savings account? Many advisors believe it shouldn’t be less than 10% of your salary, but I think you should save more when you’re young and in the prime years of your earning ability.
Build a diversified portfolio
The next step in your journey to retire rich is to build a portfolio of investments where your risk is well spread and balanced.
Some investors want to play very safe by investing in only bonds and GICs, while others take the high-risk approach by going for an equity-heavy portfolio. I always recommend a balanced approach with 30-50% of your savings invested in various fixed-income products and the rest in stocks.
Companies that pay dividends are your best bets. Your challenge here is to find reliable and stable dividend stocks that are the leaders in their respective industries.
In Canada, I divided the great dividend stocks in four categories: financials, utilities, real estate investment trusts (REITs), and energy infrastructure providers.
You should pick the top names from these sectors, such as Royal Bank of Canada (TSX:RY)(NYSE:RY), Enbridge Inc. (TSX:ENB)(NYSE:ENB), BCE Inc. (TSX:BCE)(NYSE:BCE), and RioCan Real Estate Investment Trust (TSX:REI.UN), and hold them for a long time in your saving accounts.
Take advantage of the RRSP and TFSA
In Canada, you’ve some great tax-free saving schemes which promote investing for retirement. If you’ve a Registered Retirement Savings Plan (RRSP), in which your employer also contributes, do take advantage and maximize your contributions
Another very useful tool to grow your retirement income is to invest through a Tax-Free Saving Account (TFSA). By investing through a TFSA, you don’t have to pay any tax on your capital gains at the time of withdrawal. You’re also free to dip into this account during emergencies, and these withdrawals don’t reduce your limits.
In short, if you follow these steps and stick to your plan, chances are that you’ll retire with enough money in your account to enjoy your golden age.
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Fool contributor Haris Anwar has no position in the companies mentioned. The Motley Fool owns shares of Enbridge. Enbridge is a recommendation of Stock Advisor Canada.