What you need to know before you start planning for your retirement


When it comes to your golden years, all you want is comfort and security, especially financial security. However, it takes a solid level of retirement planning to achieve this.

Retirement planning involves setting a goal of a desired level of income and the steps and choices needed to get there. In a perfect world, retirement planning would last a lifetime. Although you can start at any time, it will work best if you include it in your initial financial planning. This is the best approach to ensure a safe, enjoyable and secure retirement.

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Let’s look at three key steps in retirement planning:

Understand the delay

An effective retirement strategy should take into account the gap between your current and expected retirement age. The degree of risk your portfolio can bear is directly proportional to this time frame.

Additionally, you should invest your money in stocks or bonds that can beat inflation so that your purchasing power in retirement is not affected.

Determine spending needs during retirement

Keep realistic estimates about spending habits after retirement. The annual growth in the cost of living coupled with rising inflation will add an additional cost to the savings needed to thrive in retirement.

Other costs, including medical bills, financing the children’s education/marriage and purchasing an asset after retirement, should also be considered before determining the amount required per year.

Calculation of the real rate of return on investments

Once the time horizon and expenditure needs have been calculated, the real rate of return excluding taxes must be calculated. It provides the feasibility of your portfolio to produce the required income.

The type of your retirement account determines the type of tax imposed on investment returns. Therefore, you must calculate the actual rate of return after deducting tax from it.

A balanced retirement portfolio

Your portfolio should be balanced with different levels of risk. You shouldn’t switch your entire portfolio to one stock, even if you think it’s going to be the next Google or Microsoft. You should invest very little in the stock and allocate the rest to other sectors such as healthcare, industrials and technology.

Let’s look at a few stocks with modest revenue growth and price yield

Data source: Refinitiv as of July 8

Fortescue Metals Group Ltd (ASX:FMG) – Fortescue is an Australian-based iron ore mining company. Its operations are also spread across other countries, including Argentina, Chile, Brazil, and Ecuador.

NEXTDC Ltd (ASX:NXT) – NEXTDC is a technology company that develops and operates a data center. It provides connectivity solutions, data center outsourcing and infrastructure management software services.

OZ Minerals Ltd (ASX:OZL) – The mining company OZL specializes in copper, gold and silver through its exploration activities and mining projects.

Iluka Resources Ltd (ASX: ILU) – Iluka is a mineral sands company based in Australia. It specializes in exploration, project development, mining, processing, marketing and rehabilitation.

James Hardie Industries PLC (ASX:JHX) – James Hardie is involved in the manufacture of fiber cement products and building systems. It has businesses in Europe, North America and Asia-Pacific.

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