THE BEST WAY TO SAVE FOR RETIREMENT

Retirement is a dream come true for many, yet for others, it can be a renewed form of stress. That stress mainly comes down to finances, with Canadians worried about where their income will come from after they choose to retire.

However, if this sounds like you, there are certainly ways to get on top of your savings and put cash aside for retirement. What’s more, you can turn that cash into incredible savings for your future.

Make it automatic

If you’re going to start saving for retirement, you need to make your contributions automatic. But before that step, it’s important to figure out what those automated contributions should be. To do this, you’ll need to first come up with a budget.

However, this isn’t just any budget. Future retirees are going to have to calculate how they want to spend their money in retirement to come up with a goal. This is likely going to look very different from how you’re spending money now.

For instance, if you want to travel more or rent a recreational vehicle or something, that’s costing more than what you’re spending today. So, take this into consideration before creating your retirement goal.

From there, look at the last three months and create your budget of essential and non-essential items. This would include housing and bills in essential columns, with non-essential such as eating out the like in the non-essential column. Be frugal but also realistic to keep up with your goals.

Invest wisely

Now, if you’re making automated contributions, the next thing you can do is make smart investments with the help of your financial advisor. Making monthly contributions combined with monthly investments will create stellar results over time. To show you, let’s take the example of investing in a stock like Canadian Imperial Bank of Commerce (TSX:CM).

If you’re investing $500 per month in CIBC stock, we can look at its past performance to see how it could perform in just the next year. CIBC stock has a compound annual growth rate of 4% over the last decade. Shares could increase by 0.33% each month over the next year (if not more, given shares are down right now). On top of this, you’ll also see your shares bring in passive income through dividends, which are currently at $3.48 per share annually.

Here’s what that could look like over a year.

After investing throughout one year, you’ll have a portfolio worth $5,688 from what you’re able to invest in each stock. On top of this, you’ll have an additional $334.08 in dividend income. That would create a portfolio worth $6022.08 in just one year. Of course, you’ll have some additional cash to invest at the end of the year as well, as you can’t buy just part of a stock. Therefore, you can top up your investment at the annual mark. Continue to do this for years, and you’ll be rich by retirement — even at these conservative levels!

The post The Best Way to Save for Retirement appeared first on The Motley Fool Canada.

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Fool contributor Amy Legate-Wolfe has positions in Canadian Imperial Bank Of Commerce. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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