Our early retirement planning tips will help you accumulate the maximum amount of wealth with the minimum amount of risk

Our early retirement planning tips focus on the how best to build your future retirement wealth. You’ll never know what type of financial situation you may end up with in the future, so it’s important to make smart money decisions now.

Our key investment advice is that you should take advantage as early as is practical of all registered savings plans—RRSPs, TFSAs, etc. RESPs are particularly attractive, if they apply to you, due to the government grants that come with them.

Early retirement planning tips: Only buy bonds or other fixed-return investments if interest rates are high enough to be attractive

Don’t buy bonds just to “cut your risk.” After all, our three-part investment advice already takes a lot of the long-term risk out of investing. Adding bonds to the mix will simply cut the volatility of your portfolio value in any given year. But it does so at the cost of increasing your risk of loss to inflation.

Early retirement planning tips: Remember to take taxes into account

As for tax rules, they are subject to change. But it’s safe to assume that you’ll pay a lower rate of tax on dividends and capital gains than on interest, and that you’ll generally pay taxes on capital gains only when you sell.

As for the return you expect, it’s best to aim low. If you invest in bonds, assume you will earn the current yield; don’t assume you can make money trading in bonds. For stocks, the market returned 10% or so yearly on average over the past 80 or so years. Aim lower—7% a year, say—to allow for unforeseeable problems and setbacks.

Having a good financial plan is important but the happiest retirees are those who stay busy. You can do that with travel, golf or sailing. But volunteering, or working part-time at something you enjoy, can work just as well.

Early retirement planning tips: Don’t let your retirement investing be distracted by the direction of the stock market

The funny thing about a financial plan is that you can actually make it less effective if you try to improve it. For instance, you may decide to vary how much money you invest every year, depending on your view of the market outlook. And that’s likely to cost you money at least half of the time.

If you invest more money in years when you’re confident about the economy or market, you may wind up buying more shares when prices are high. If you cut back on your investing in years when the outlook is uncertain, you’ll buy fewer when prices are low.

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.

Early retirement planning tips: 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.

Most accountants or tax preparers can do the math for you, based on numbers you provide. However, coming up with realistic numbers is the hard part. That’s because in part, it depends on your personal preferences.

For instance, a financial planner can give you some idea of what others are saving. But you should base your savings on the way you want to live, rather than on the averages. You also need a realistic view of how much retirement income you’ll need once you’ve stopped working.

When did you begin saving for your retirement and what investments did you make in doing so? Please share your experience with us in the comments.