The nature of work and retirement is changing in the first half of this century. Young workers have been thrust into what some are calling the “gig economy”. In this system, temporary positions have become more common and organizations often prefer to contract with independent workers for short-term engagements. Baby boomers were treated to a very different work environment, and many are now moving into retirement.
In the spring, I discussed why it is more important than ever to maximize your RRSP. Recent surveys have shown that there are a troubling number of Canadians who have failed to save enough for a comfortable retirement. Today I want to go over two investment tips that retirees should think about as we look ahead to the next decade.
Don’t roll the dice when you are close to retirement
The lack of preparedness ahead of retirement can generate conditions that are damaging for retirees. Last month I discussed why assuming you can work indefinitely can be risky.
Toronto-based investment counsellor Patrick McKeough calls this “pre-retirement financial stress syndrome”. In this stage, investors who are nearing retirement may turn to high-risk gambles in order to make up for lost time. This is a very dangerous strategy to pursue and is not recommended for those nearing retirement or for retirees who are unsatisfied with their nest egg.
Some safe stocks that I love right now are in the utilities and telecom sectors. Take Fortis as an example. The St. John’s-based utility has seen its shares climbed 18% in 2019 as of close on November 11. The stock has achieved average annual returns of 9.5% over the past 10 years. Fortis currently offers a quarterly dividend of $0.4775 per share and has delivered dividend growth for 46 consecutive years.
Look to other savings vehicles
Retirees can often become locked-in and reliant on their Canada Pension Plan (CPP) and their Registered Retirement Income Fund (RRIF), which is what is used to generate income from the savings accumulated in an RRSP. Those saving for retirement, no matter what stage they are in, may also be solely focused on this savings account. This is a mistake.
The Tax-Free Savings Account (TFSA) is a great tool for those looking to build a retirement nest egg. By now, investors should know about the benefits of the account. Capital gains and dividend income from Canadian-listed stocks are not taxed. Over the long term, this can be a massive boon.
Real estate investment trusts (REITs) are a favourite of mine for retirees in a TFSA. Riocan REIT is the second-largest REIT in Canada. It owns hundreds of retail properties across Canada and is an established income machine. The Riocan REIT stock currently offers a monthly dividend of $0.12 per share, representing a 5.4% yield. A retiree who picked up 1,000 shares of Riocan can scoop up $120 of tax-free dividends per month in their TFSA.
