Saving for retirement can be tough, especially for those in the later stages of their careers. That's because most people rely on only one source of income. This makes it difficult to both cover daily expenses and build a retirement savings.
Fortunately, there are options to explore. For many, having multiple income streams may help enhance their financial stability and savings potential.
Creating multiple income streams might not be as complicated as it seems. In some cases, it may not even require taking on additional work. For example, you can grow your money with:
- Pension Plans
- Diversified Investments
- Tax-Free Savings Accounts
- Registered Retirement Savings Plans
- Passive Income Streams
Are you ready to learn how you can jumpstart your retirement savings? Here, we've put together some actionable tips to help you start on your path to a successful retirement.
Understanding Employer Pension Plans
An employer-sponsored pension plan is an excellent way to grow your retirement savings. Pension plans often include matching contributions from your employer, making them a no-brainer for your financial future.
If your employer offers a pension plan, participating in it can be a way to grow retirement savings, especially if it includes matching contributions. By maximizing your contribution, you maximize that of your employer's, significantly boosting your retirement savings.
Make the Most of RRSP Contributions
Registered retirement savings accounts (RRSPs) are also a great option for your retirement savings. Since these accounts are registered with the Canada Revenue Agency (CRA), they help grow your retirement funds while offering significant tax and other benefits:
Reduced taxable income
Tax-deferred investment
Income splitting eligible
Funds accessible for first-time homebuyers
Funds accessible to help cover higher education
Some people find that automating RRSP contributions helps them stay consistent with their savings goals.
Exploring the Benefits of TFSAs
You can save even more with a tax-free savings account (TFSA). While it doesn't replace a registered retirement savings plan, it complements retirement savings. Also, the average interest rate on TFSAs is higher than what you usually earn from a regular savings account, making it an effective way to grow your money.
Contributing to a TFSA can offer growth potential through interest and tax benefits, though results may vary depending on usage. However, keep in mind that there are limits on how much you can contribute each year.
What's more, a TFSA allows you to withdraw funds without facing a tax penalty. This makes it a flexible option for saving for retirement.
The Role of Diversification in Investment Strategies
Investing can be a great way to build wealth, and you don't need a lot of money to get started. If you decide to invest, be sure you're reducing your financial risk through "diversification." That's when you spread your money across different assets and asset types instead of putting all your money into one asset.
With diversification, some of your assets' values will rise while others decline throughout the lifetime of your investments. Diversification helps stabilize the overall value of your portfolio and increases your chances of driving net gains. Diversification is often considered a way to manage risk, particularly during volatile financial periods.
Personal investments can be less stable than other retirement savings options like pensions. That's why it's important to monitor your investments; as markets change over time, you may need to adjust your asset mix. However, in most cases, a diversified portfolio needs fewer reviews and tweaks compared to that of an active trader, for example — even as your investment values fluctuate.
Exploring Passive Income Opportunities
Another way to boost your savings, especially for retirement, is by creating passive income streams. Passive income earns money for you. Once you've set up a viable method for passive income, your income will grow with little effort on your part.
People often talk about passive income ideas, and some are more effective than others. Here are a few common examples that have helped everyday people achieve success:
- Rental properties, where you can earn monthly rent from tenants
- Dividend stocks, providing regular payouts from company profits
- Peer-to-peer lending, offering interest income through personal loans
- Online courses or e-books, generating sales revenue with a one-time creation effort
- A low-touch ecommerce store that expands on your existing retail operations
With careful planning, any of these methods can help stabilize your income above what you earn from a paycheck alone. You can also start small—test these ventures to see if they're for you. Invest a little at first, then reinvest the profits later. By building momentum, you'll create a financial safety net for the future.
Considering Multiple Retirement Income Sources
Benjamin Franklin once said, "If you fail to plan, you are planning to fail." Saving for retirement — or anything else — requires a clear vision and a solid, workable plan that fits your lifestyle.
Each income stream mentioned can provide a plan for a more comfortable retirement. Starting savings early may provide more time for your investments to grow. By combining multiple income sources and savings options, you can significantly boost your retirement savings and secure a more stable future.