What is the Best Way to Save for Retirement? Having a Strategy in Place

What is the best way to save for retirement? The answer depends on individual investors and the goals they have for retirement. However, starting your retirement investing early and utilizing proven strategies and investment types will help you save the most.

What is the best way to save for retirement? The best retirement plan you can have is to start saving as early in your working career as possible.

However, there are other considerations, including your lifestyle, where you invest money during your working years, and the kinds of investments you make.


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What is the best way to save for retirement? Start early

When you start early, you then invest a steady or rising amount of that money in the stock market every year. When you follow this plan, you automatically profit from dollar-cost averaging: You will buy more shares when prices are low, and fewer shares when prices are high.

In retirement, you reverse the process. You live off your dividends, and sell stocks only when you need more money. When you do that, you sell your lower-quality holdings first. That way, your sales have the added advantage of upgrading the quality of your portfolio.

What is the best way to save for retirement? Consider your lifestyle

How much to save for retirement varies for each investor. A fulfilling retirement is not simply a matter of accumulating sufficient wealth to give you peace of mind. It is equally a matter of knowing what you will do—in effect, ensuring that you will be as active and productive with your time as you were during your working days.

We recommend that you base your retirement planning on a sound financial plan. Here are the four key variables that your plan should address to ensure you have sufficient retirement income:

  • How much you expect to save prior to retirement;
  • The return you expect on your savings;
  • How much of that return you’ll have left after taxes;
  • How much retirement income you’ll need once you’ve left the workforce.

What is the best way to save for retirement? Have a strategy in place that uses RRSPs

RRSPs (Registered Retirement Savings Plans) are a great way for investors to cut their tax bills and make more money from their retirement investing. RRSPs are a form of tax-deferred savings plan. RRSP contributions are tax deductible, and the investments grow tax-free. (Note that you can currently contribute up to 18% of your earned income from the previous year. March 1, 2018, is the last day you can contribute to an RRSP and deduct your contribution from your previous year’s income.

When you later begin withdrawing the funds from your RRSP, they are taxed as ordinary income.

If you want to pay less tax on dividends, interest and capital gains while you’re still working, investing in an RRSP is the way to go.

What is the best way to save for retirement? Invest in dividend-paying stocks during your working career

Dividends play a very important role in retirement, but not quite the way people think. A history of 10 or 15 years is kind of a pedigree for a stock. It tells you the stock has been looking after its investors for a long time.

And that record of dividend payments is something you can’t fake. So it’s a very good idea in retirement to confine your buying to stocks that have a long record of paying dividends.

But if you’re investing with a sound plan in mind, there’ll be some years when you need to sell things, like for instance when a stock has come to take up too big a part of your portfolio. You may then want to sell part of or all of it. And when that happens, capital gains are every bit as spendable as dividends.

Some people like to believe they can just set up a portfolio once and forget about it. But it’s a mistake to do that. Some people think that buy-and-hold means buy and forget about it, but it really should be buy, hold and watch carefully.

And when you do that with stocks that pay dividends, you have fewer unpleasant surprises and a better, more stable source of retirement income.

What is the best way to save for retirement? Don’t be distracted by the direction of the stock market

In the course of your investing career, you’ll make some good guesses about market direction, and some bad ones; overall, they are likely to average out. That’s why it’s best to keep to your plan no matter what the market does. It’s much easier to spot high-quality investments than it is to try and predict the next shift in the direction of share prices.

This plan can produce great results for you, when you start early and stick with it. However, few investors do that. Many investors simply run into too many ways to get sidetracked, and fail to stay with this steady—and successful—approach.

What are the best types of retirement investments you’ve made in your working career?

What concerns do you have about your retirement investing strategy?

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