It is always best to start retirement planning as early as possible. This would allow your savings to grow due to compounding interests.
First of all, you would need to calculate how much you require every month when you retire. Take into consideration inflation or the purchasing power of your money in the future. For example, you might just require $1000 for basic necessities in the future.
To achieve this $1000, you might need to dig into your savings or from passive income. For planning purposes, you might retire at 65 and it is highly likely that you might pass away at 85, hence, you would need $1000 every month for the next 20 years which amounts to $240,000. If you do not have any passive income, this means that you would need to have roughly a quarter million in your bank account.
My recommendation would be a mix of both passive income and savings as you might live longer or that $1000 might no longer be enough for survival.
Every 10 year, our economy undergo several cycles of up and down. Of course, it is advisable for people to buy low and sell high. However, there is still a possibility to just buy low and sit on those stocks as stocks normally provides dividends. Let's imagine a dividend rate of 5%, this means that to get $12000 a year, you would need to put $240,000 in that stock.
It is obvious that dividend rates are not fixed as they are tied to the profits of a company. Hence, it would be advisable to put your money in different companies in different industries. Read the dividend payout of those companies that you are interested in, if they are paying 5% for the past 3 years, then it is probable that they would pay a fixed rate based on their share price for that year. However, companies usually pay a variable dividend rather than a fixed rate. Hence, based on the cyclical swing of the stock market, it would be better to catch those stocks that you had been eyeing during recessions and keep them for their dividends especially if those companies can afford to even pay 5% dividend rate during recessions.
Normally defensive industries like utilities and transport are good companies that pay good dividends. Others would be banking and REITS. Hence, collect these stocks early and re-invest your dividends for a bigger egg nest and future passive income.
