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Highlights
- Retirement planning is about setting a desired level of retirement income as well as the steps needed to get there
- The components of retirement planning are – the identification of income sources, estimation of expenses, implementing a savings plan, and managing risks and assets
- A retirement portfolio must be balanced with various levels of risk and stocks spread across diversified sector
When it comes to one’s golden years, all one wants is comfort and security – especially financial security. However, it takes a solid level of retirement planning to achieve that.
Retirement planning involves setting a goal of a desired level of income as well as the steps and choices required to get there. In a perfect world, retirement planning would last a lifetime. Although you can begin at any moment, it will work best if you include it in your initial financial planning. That is the best approach to guarantee a secure, enjoyable, and safe retirement.
Which top ASX dividend shares serve as great retirement options?
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Let us look at four key planning steps for retirement:
1. Understanding the time frame
An effective retirement strategy should consider the gap between your current and expected retirement age. The degree of risk your portfolio can endure is directly proportional to that amount of time.
Also, you should put your money in stocks or bonds that would be able to beat inflation so that your purchasing power during retirement remains unaffected.
2. Determining spending needs during retirement
One must keep realistic estimates about post-retirement spending habits. The year-on-year growth in cost of living coupled with rising inflation will add extra cost to the savings required to thrive during retirement.
Other costs, including medical expenses, funding for children’s education/marriage, and buying an asset post retirement, must also be considered before determining the amount required per year.
3. Calculating the real rate of investment returns
Once the time frame and spending requirements are calculated, the real rate of return excluding tax must be calculated. It provides the feasibility of your portfolio to produce the needed 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 the tax on it.
4. A balanced retirement portfolio
Your portfolio must be balanced with various levels of risk. You should not switch your entire portfolio to a single stock even if you think it’s going to be the next Google or Microsoft. You should make very little investment in the stock and spread the remaining to other sectors such as healthcare, industrial, technology.
Let us look into few stocks with modest revenue growth and price return
Data source: EODHD/Others as of 08 July
Fortescue Metals Group Ltd (ASX:FMG) – Fortescue is an Australia-based iron ore mining company. Its activities are also spread around other countries, including Argentina, Chile, Brazil, and Ecuador.
NEXTDC Ltd (ASX:NXT) – NEXTDC is a technology company developing and operating a data centre. It provides connectivity, data centre outsourcing solutions, and infrastructure management software services.
OZ Minerals Ltd (ASX:OZL) – Mining company OZL specialises 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 specialises in exploration, project development, mining, processing, marketing, and rehabilitation.
James Hardie Industries PLC (ASX:JHX) – James Hardie is involved in manufacturing fibre cement products and construction systems. It has businesses across Europe, North America and the Asia Pacific.
