Most people need to save more money for retirement. According to a report by Vanguard, the average American had about $141,500 saved for retirement. At a suggested annual withdrawal rate of 4%, this would give them about $5,660 per year to live on in retirement.
Given these numbers, future retirees must increase their savings rates and return to a comfortable retirement. Here are three of the best ways to invest for retirement to grow your nest egg to a more meaningful level.
Keep things simple with index funds
The easiest way to invest for retirement is to buy one Index funds. This exchange-traded fund (ETFAims to provide returns that match the underlying stock market index, ie S&P 500. The Best index funds have less ETF expense ratioEnables investors to keep their returns high.
There are two top options to consider for future retirees Vanguard Total Stock Market ETF (VTI -1.03%) or Vanguard S&P 500 ETF (Flight -1.07%). Total market ETFs give investors broad exposure to the entire US stock market as the fund holds nearly 4,000 stocks. Meanwhile, the S&P 500 ETF holds shares of the nation’s 500 largest companies. Both ETFs have an ultra-low expense ratio of 0.03%. These funds enable investors to earn Average stock market returns. For the S&P 500, that has been about 9.4% annualized over the past 50 years. At that rate or return, a $250 monthly investment would grow to $1 million in about 37 years. This would provide a retiree with approximately $40,000 in annual income at a 4% annual withdrawal rate.
Increase your returns with dividend growth stocks
Investors can earn more than an index fund. While some investment options require more risk, investing in dividend growth stocks (that is, companies that consistently increase their Dividend payment) offers high return earning potential with low risk.
According to data from Ned Davis Research and The Hartford Fund, companies that have initiated or consistently increased their dividends paid 10.7% annually. Total return For the past 50 years. Further, they have achieved those higher returns with less volatility than the S&P 500.
Investors interested in adding dividend growth stocks to their retirement portfolios can buy an ETF focused on companies that grow their dividends or individuals. Dividend stocks. A top ETF option is iShares Core Dividend Growth ETF (DGR -0.52%). That ETF holds about 450 dividend-paying stocks with a history of sustained growth.
Meanwhile, investors have many individual stocks they can choose to add to their portfolios that are dividend producers. A great place to start is with lists Dividend Kings, companies with 50 or more years of consistent dividend growth Notable names on that list include consumer goods behemoths Proctor and gambling66 years of dividend growth, and with the beverage giant Coca ColaWith 60 years of steady growth.
Improve your returns and reduce risk with REITs
Real estate investment Because it provides potential for another retirement strategy passive income and value perception. While an optimistic retiree may purchase an investment property to reap those rewards, investing in real estate investment trusts (REITs) is a simpler option. There are REITs Historically Produced higher returns than stocks with lower volatility.
Retirement-minded investors can buy one REIT ETFs or shares of an individual REIT. Considered a top REIT Realty income (O -0.40%). It lives up to its name. REITs offer an attractive payout Monthly dividend (with current Production dividend 4.4%) which has increased steadily over the years. It has increased its payout in each of the past 101 consecutive quarters. That steadily growing dividend — driven by rental increases and property acquisitions — has helped Realty Income average an annual total return of 14.4% since listing on the public stock market in 1994.
Great way to grow your retirement nest egg
Most people need to save and invest more money for retirement. They need to ensure that they are earning the best risk-adjusted return on their money. For that reason, index funds, dividend growth stocks, and REITs are among the best future retirement investments because they historically produce strong returns with less risk than many alternatives. This will help grow a retiree’s portfolio to a larger size so that they can enjoy a more comfortable retirement.
Matthew DiLallo owns Realty Income. The Motley Fool owns and recommends positions in Vanguard Index Fund-Vanguard Total Stock Market ETF and Vanguard S&P 500 ETF. The Motley Fool recommends the following options: Long the January 2024 $47.50 Coca-Cola call. Motley Fool has a revealing policy.