It would be highly soothing to have a seven-digit bank balance in your sunset years. You might not need to worry about paying bills nor about sacrificing your lifestyle post-retirement with that reserve. However, is it really possible to retire with such a generous amount?
Investing for your retirement
If I can do it, anyone can do it. Importantly, you don’t need to have a big upfront investment to have a large retirement reserve. A consistent amount invested patiently for the long term will achieve this goal.
Stock markets are a great source of wealth creation. Regrettably, some over-assume stock market risk and avoid it altogether.
However, markets have plenty of stocks with distinct risk and return characteristics. If one wants higher risk and higher returns, they might go for growth stocks like tech companies. If one is looking for stability and safety, they can choose to invest in defensive stocks like utilities.
How much do I need to invest to retire with a million?
Here’s how you need to save and invest per month if you want to retire with $1 million by the age of 60.
|Age||Monthly investment @ 8% return||Monthly [email protected] 10% return||Monthly investment @ 12% return|
There are many TSX stocks that have returned 10% compounded annually on average over the longer term. Consider top utility stock Fortis (TSX:FTS)(NYSE:FTS) for your long-term portfolio. Including dividends, it has returned 10% compounded annually in the last decade.
Utility stocks provide stability to your portfolio, as their earnings are not vulnerable to economic cycles. They provide stable returns, even in market downturns, and thus, they have outperformed broader markets in the long term.
Fortis has increased dividends for the last 47 consecutive years and yields 4% at the moment. The longer the investment duration, the bigger the reserve, and the higher the dividend payouts will be.
Potential retirees should note that your million-dollar investment portfolio will not deplete over time as you use it to pay your bills. Those will be taken care of by the dividend payouts that the portfolio will generate.
For example, a million dollars in a stock yielding 4% would make $3,333 in dividends every month. As the company’s earnings grow, the stock price will increase, and the investment portfolio’s value will ultimately rise.
Another stock one can consider for your long-term portfolio is BCE (TSX:BCE)(NYSE:BCE). It has returned 12% compounded annually in the last 10 years, including dividends. BCE has paid consistently growing dividends over the years, and you can expect immense portfolio stability with it.
You will hardly see big volatility in telecom stocks like BCE as you see in risky, growth stocks.
BCE yields 6% at the moment. So, a million-dollar investment in BCE would generate $5,000 in dividends every month.
The Foolish takeaway
The most important point to note here is starting early. It will give more time for compounding and will make it relatively easier to hit the goal. It should also be noted that it’s not impossible to retire with a seven-digit figure if you start investing at 50 or later.
It’s just that you will have to shell out a comparatively higher amount per month and might have to take higher risks to achieve superior returns.
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Fool contributor Vineet Kulkarni has no position in any of the stocks mentioned. The Motley Fool recommends FORTIS INC.