Time moves pretty fast. Before you know it, you’re on the cusp of retirement. Some Canadians are behind on retirement funds for the golden years. While it could be nerve-wracking to find yourself in your 40s without savings, panic is not the solution. You still have time to get back on track and sock away money.
If you want to catch up, focus your energy on building a nest egg. Starting today, use three simple strategies from now on. You’ll be ready to retire in, say, 20 or 25 years and live comfortably in retirement.
1. Don’t pile up your debts
The fallout from COVID-19 includes job layoffs and fewer working hours. As much as possible, avoid borrowing or swiping credit cards because of financial hardship. The last thing you need is to pile up on debts. Avail of emergency pandemic benefits where you’re eligible to help you during the recession.
If you have money and high-interest credit card debts, pay them off first. It would be best to be debt-free when you start saving for retirement.
2. Cut down on expenses
It’s not easy to save if you live from paycheck to paycheck and have other financial priorities. However, you can re-examine your monthly budget to see where you can cut down on expenses. You might be able to free up more cash. Whatever money you save can go directly to retirement savings.
3. Invest for pension-like income
Allow your savings to work for you instead of keeping idle cash. One of the effective strategies to grow your retirement savings is to go dividend investing. When you invest in a reliable dividend stock, you can create a pension-like income.
Your Canada Pension Plan (CPP) and Old Age Security (OAS) pensions won’t guarantee financial stability in retirement. Some dividend-paying companies increase their payouts every year so that you can look forward to an ever-growing pension-like income too. Likewise, you build a hedge against inflation.
A blue-chip stock for a retiree’s portfolio
The stock market is not without risks. Share prices spike and dip depending on the market environment. However, a blue-chip asset like Royal Bank of Canada (TSX:RY)(NYSE:RY) is a good anchor in a retiree’s portfolio. Its 150-year dividend track record should lend comfort to prospective investors.
This $153.82 billion bank is the largest in Canada’s banking industry. Likewise, it’s the seventh most valuable banking brand in North America in 2020, according to Statista, the number one business data platform globally.
This year, Canadian customers’ survey results show RBC is their favourite bank (794 out of 1,000 ratings from the respondents). It’s a strong brand that rates high in customer relationships. Data reveals that the value of shareholder equity has increased year on year since 2013.
RBC pays a 4.26% dividend. Your $100,000 savings can produce $1,090 in quarterly income. If you won’t touch the principal and keep reinvesting the dividends, your money will compound to $234,790.98 in 20 years, or $290,637.57 in 25 years.
Act: Don’t freeze
Don’t despair over it too much if you’re 40 without retirement savings. Act instead of freezing in panic. You have sufficient time to ensure retirement readiness by the time you reach 60 or 65.
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Fool contributor Christopher Liew has no position in any of the stocks mentioned.