With the cost of living being high, it is difficult to save money each month for retirement. Rising house prices, lacklustre wage growth and an uncertain economic outlook can mean that many people reach the age of 40 without having a retirement plan.
While that may not seem to be a good position to be in, there is still sufficient time to build a nest egg for retirement. From it, a passive income can be generated which provides financial freedom in older age.
Here are three steps that could be worth taking right now in order to achieve that goal, with there even being the potential to retire early.
Start investing today
Buying shares today may not seem to be a sound idea to many people. After all, there are a wide range of risks facing the UK and global economies. They include Brexit, the US/China trade war and political risks in the US. Any of those risks, and many others, could produce a period of disappointing investment performance – and even a bear market.
However, for someone who has many years left until retirement, bear markets may not be such a bad thing. After all, they provide scope to buy shares at lower prices, while the stock market has historically risen in the long run.
As such, buying shares now while they trade on relatively low valuations could be a sound move. Furthermore, buying during recessions and bear markets could be a worthwhile idea. It may lead to short-term paper losses, but it could produce a larger nest egg in 20+ years’ time.
Invest in a tax-efficient manner
Investing in a tax-efficient way is not an especially difficult move for any investor to make. There are a wide range of options, such as a SIPP and an ISA, which are easy to set up and do not cost significant sums of money to administer.
In the long run, they could provide significantly higher returns for an investor. Certainly, the capital gains tax allowance and the dividend allowance may seem generous today, but after many years of capital growth and income returns from your retirement portfolio, it may be the case that they become insufficient.
As such, thinking years ahead in terms of avoiding tax could be a simple, but highly worthwhile, move from a financial perspective.
Although diversification is not a particularly interesting idea, it is essential for any investor to limit the impact of a single company’s performance on their portfolio. Any company can release a profit warning at any time, and even the very best investors make mistakes from time-to-time.
As such, limiting the risk of your portfolio through holding a variety of stocks could not only reduce risk, but also increase your long-term return prospects. This could lead to a larger portfolio in the long run, as well as a higher chance of retiring early.
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Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.