Canadians in Your 20s: How to Retire in Your 30s

Many millennials have ways to achieve financial independence in the hope of retiring early. One proven way to amass retirement wealth is to invest long term and own a blue-chip stock like Bank of Nova stock.

| More on:

Is there a way that Canadians in their twenties can achieve financial independence and retire far earlier than others? Early retirement is the desire of many, although clocking out from the mainstream is rarely without its challenges. The key is to create a comprehensive retirement planning and see the plan through.

Think hard before you embark on a journey to early retirement. The financial goal is enormous, so it entails a lot of sacrifices and scrimping. If you belong to the twenty-something group, the following options could help you make your dream come true.

1. FIRE movement strategy

Many millennials embrace the strategy of the Financial Independence, Retire Early (FIRE) movement. The inspiration behind this movement is the 1992 best-selling book Your Money or Your Life. Authors Vicki Robin and Joe Dominguez advocate the extreme-saving lifestyle.

The FIRE movement recommends saving up to 70% of your yearly income. Once you reach $1 million, or 30 times your annual expenses, you’re in a better position to consider early retirement. Since you’re a retiree at a young age, follow the FIRE devotees’ small withdrawals strategy. Take only 3% to 4% of your savings yearly, then monitor or control your living expenses.

2. Invest for the long term

Retirement planning involves not only saving money, but also investing it to make more money. Stocks have historically outperformed other assets and delivered higher returns. Thus, invest for the long term and don’t chase after short-term gains. Some blue-chip stocks, for example, have dividend track records of more than 100 years.

You benefit from the power of compounding when you reinvest dividends. Canadians have two great investment vehicles to grow their money faster. Open a Tax-Free Savings Account (TFSA) and Registered Retirement Savings Plan (RRSP) and contribute the maximum every year if finances allow.

3. Don’t accumulate debts

Debt is an obstacle if you have early retirement plans. Hence, pay off your debts before you retire instead of accumulating new ones. Otherwise, you set back your timetable for several years. Remember, the core premise is to free up cash, avoid incurring interest costs, and accumulate more funds for investment purposes.

Lasting investment income

For lasting investment income, the Bank of Nova Scotia (TSX:BNS)(NYSE:BNS) is a no-brainer choice. Besides paying the highest dividend in the banking sector, Canada’s third-largest bank boasts of nearly 190 years dividend track record. It only confirms that Scotiabank is indeed a reliable income provider of retirees.

You can buy the blue-chip stock and hold it forever. Let’s assume your investible fund today is $75,000, and Scotiabank’s dividend yield (4.55%) remains constant. Your money will compound to $187,617.34 in 20 years if you keep reinvesting the dividends. The computation gives you an idea of how compound interest works.

As of May 21, 2021, the share price is 79.08% (18% year-to-date gain), and analysts forecast BNS to climb 20% to $95 in the next 12 months. The $95.88 billion bank has been beating consensus estimates every time. Market observers already expect the coming Q2 fiscal 2021 earnings results to more robust than the preceding quarter.

Pipe dream

FIRE is a widely held goal, although only a few can claim success with the extreme-saving method. Early retirement is easier said than done. However, the pipe dream to retire before the standard timeline is still possible if you have a comprehensive retirement plan.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Christopher Liew has no position in any of the stocks mentioned. The Motley Fool recommends BANK OF NOVA SCOTIA.

More on Dividend Stocks

TFSA (Tax-Free Savings Account) on wooden blocks and Canadian one hundred dollar bills.
Dividend Stocks

Where to Invest Your $7,000 TFSA Contribution

The TFSA is attractive for investors who want to generate tax-free passive income.

Read more »

The TFSA is a powerful savings vehicle for Canadians who are saving for retirement.
Dividend Stocks

TFSA Investors: 3 Dividend Stocks Worth Holding Forever

These TSX stocks have the potential to grow their dividends over the next decade, making them top investments for TFSA…

Read more »

Tractor spraying a field of wheat
Dividend Stocks

Is Nutrien Stock a Buy for its Dividend Yield?

Nutrien is down more than 50% form the 2022 highs. Is NTR stock now oversold?

Read more »

golden sunset in crude oil refinery with pipeline system
Dividend Stocks

Best Stock to Buy Right Now: Enbridge vs TC Energy?

Enbridge and TC Energy rebounded nicely over the past year. Are more gains on the way?

Read more »

Electricity transmission towers with orange glowing wires against night sky
Dividend Stocks

2 Utility Stocks That Are Smart Buys for Canadians in November

Are you looking for some of the smart buys to consider in November? These utility stocks offer growth and a…

Read more »

View of high rise corporate buildings in the financial district of Toronto, Canada
Dividend Stocks

Is Power Corporation of Canada Stock a Buy for its 5% Dividend Yield?

Is Power Corporation of Canada (TSX:POW) stock's 5% dividend yield worth it? Discover why this resilient stock could be a…

Read more »

hand stacks coins
Dividend Stocks

Here Are My Top 3 Dividend Stocks to Buy Now

These three dividend stocks are ideal for strengthening your portfolio and earning a stable passive income.

Read more »

man touches brain to show a good idea
Dividend Stocks

3 No-Brainer REIT Stocks to Buy Right Now for Less Than $200

REITs have long been touted as some of the best dividend stocks out there if you want recurring, strong income.…

Read more »