Learn how to invest safely for retirement to maximize your wealth

living on dividends in retirement

Learn how to invest safely for retirement by using a sound plan, plus a conservative strategy that accounts for unforeseen setbacks

Top-quality stocks tend to lose less of their value in the kind of severe market setback we’re experiencing today. They also tend to bounce back nicely when conditions improve. These are the kinds of stocks we continue to recommend in our newsletters and other services.

To build a portfolio of those stocks—and to show the best long-term results, Pat McKeough still thinks you should stick with his three-part program:

  1. Hold mostly high-quality, dividend-paying stocks.
  2. Spread your money out across most if not all of the five main economic sectors: Manufacturing & Industry, Resources & Commodities, Consumer, Finance and Utilities.
  3. Downplay or stay out of stocks in the broker/media limelight

Meantime, for investors looking to create a good financial plan for how to invest safely for retirement, we recommend keeping it simple and safe, rather than taking on extra risk. For starters, save more now, work longer, or plan to spend less.

Above all, it’s important to remember that while finances are important, 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.


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Learn how to invest safely for retirement using a Registered Retirement Savings Plan

An RRSP is a great way for investors to cut their tax bills and make more money from their retirement investing.

They were introduced by the federal government in 1957 to encourage Canadians to save for retirement. Before RRSPs, only individuals who belonged to employer-sponsored registered pension plans could deduct pension contributions from their taxable income.

RRSPs are a form of tax-deferred savings plan. They are a little like other investment accounts, except for their tax treatment. RRSP contributions are tax deductible, and the investments grow tax-free.

You might think of investment gains in an RRSP as a double profit. Instead of paying up to 50% of your profit to the government in taxes and keeping 50% to work for you, you keep 100% of your profit working for you, until you take it out (at which time you’re likely to be in a lower tax bracket in retirement).

Assume conservative returns to account for unforeseen setbacks when considering how to invest safely for retirement

As for the return you expect from investing for retirement, it’s best to aim low. If you invest in bonds, assume you will earn the current yield; don’t assume there will be increases in the value of the bonds.

Over long periods, the total return on a well-diversified portfolio of high-quality stocks runs to as much as 10%, or around 7.5% after inflation. Aim lower in your retirement planning—5% a year, say—to allow for unforeseeable problems and setbacks.

One thing we encourage all Successful Investors to do is perform a detailed study of how you spend your money now. Then, you analyze your findings to see what personal expenses you can cut or eliminate. This too can have fringe benefits, especially if it helps you break unhealthy habits. You may be surprised at how much you’re spending and how much more you could be saving for retirement.

Keep your money growing by staying out of balanced funds

Funds that have the term “asset allocation, or balanced” in their names will hold bonds, and we advise investors to stay out of long-term bonds. That’s because bonds are unlikely to perform as well in the next few years as they have in the past, mainly because interest rates will likely hold steady or fall only slightly in the short term—but rise in the longer term. (Bond prices and interest rates are inversely linked. When interest rates go up, bond prices go down, and vice versa.) That means investors would only earn interest income on their bonds; instead of capital gains, their bond holdings could produce capital losses.

Remember to take taxes into account so you can save properly for retirement

As for Canada’s tax structure, it is of course 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.

Some analysts believe that Canadians are facing a looming retirement crisis. What are your thoughts?

What is your best advice for investing for retirement?

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