5 Actions You Should Take to Build a Sizable Retirement Nest Egg

Planning for retirement can appear to be a daunting task, especially if you don't have a background in finance or accounting. However, despite the seeming complexity of the task, building a sizable nest egg for retirement is a not as difficult as it seems.

In fact, investors who want to build a retirement portfolio have a lot of instruments and tools at hand in order to take charge. Real estate investment trusts, or REITs, are particularly suitable for income investors who need to build a portfolio of dividend paying stocks in order to fund monthly living expenses later on in life.

Building a REIT-based retirement portfolio makes a lot of sense: REITs, by law, are required to pay out most of their earnings to shareholders. They are often highly diversified and offer investors some form of inflation protection due to rent indexing and increasing property values over the long run.

Investors who are determined to follow through with a rigorous, long-term financial plan and are persistently making their investment contributions have a good chance of building a strong and resilient REIT-based retirement portfolio as long as they follow five basic steps to build wealth:

1. Start young
By starting young you are gaining a tremendous advantage over people who start with their retirement plan later in life: The power of compounding will work its magic for you sooner and for a longer period of time.

Saving just $50 a month can make a hell of difference when accumulated over many years.
2. Automatic savings
Automatic savings plans are the best way to save money on a regular basis without really perceiving it as saving. Have 5-15% of your monthly paycheck automatically deposited into a savings or investment account.

That way you build up a sizable nest egg without being tempted to spend your money on things you don't really need.
3. Invest
That's right. When you want to make a difference for your retirement you must invest and let your capital work for you.

As a general rule, the younger you are, the higher the allocation to risky equities can be. As you age and transition into your 50s, you should gradually move your assets into low risk bonds.

Mutual funds are a good start to conceptualize your financial planning.
4. REITs as income vehicles
An alternative to mutual finds are real estate investment trusts, or REITs, which invest in different property types and can put building a retirement portfolio on auto pilot.

High quality REITs such as Realty Income (NYSE: O  ) or Omega Healthcare Investors (NYSE: OHI  ) provide investors with recurring income while offering exposure to convincing long-term trends in real estate and senior health care demand.

These REITs have outstanding shareholder remuneration records, top management, and strong property portfolios generating recurring cash flow. Both REITs invest in real estate for the long-term and have proven over many business cycles that they can consistently deliver value for shareholders. And as we all know: A constant, reliable stream of cash is most valuable in times of market uncertainty.

5. Reinvest dividends
Probably the most undervalued theme for building a sizable retirement nest egg relates to reinvesting dividends. Reinvesting dividends or bond income allows investors to utilize the power of compounding and to smooth out the inherent fluctuations in the stock market.

 Whenever possible, investors should utilize dividend reinvestment plans which are offered by a variety of publicly traded REITs.
The Foolish Bottom Line
Building a retirement nest egg is relatively straightforward and not as difficult as it seems: Start young, live below your means, save a small percentage of your monthly paycheck, regularly invest money in REITs and reinvest your cash flows.

If you do all of this on a persistent basis, your retirement nest egg will grow quickly and may even allow you to retire early.

How to get even more income during retirement
These actions play a key role in your financial security, but it’s not the only way to boost your retirement income. In our brand-new free report, our retirement experts give their insight on a simple strategy to take advantage of a little-known IRS rule that can help ensure a more comfortable retirement for you and your family. Click here to get your copy today.

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  • Report this Comment On November 12, 2014, at 7:53 AM, foolishlymeek wrote:

    Great article - and very easy steps to follow!

    If only we could get more people to start young! Unfortunately (including me!),many people thought we had too much college debt, had to buy a new car with the new job, then needed to move for the new job, and, of course, need new clothes for that job!

    Just a little bit (even $100 a month) can grow so fast when you don't touch it. (AND don't think you can time the market. The worst thing to do is to pull your money when the market goes down!)

    Invest automatically through your employer, if possible, or on your own.

    Take absolutely every penny of matching funds offered by an employer. This money is absolutely free!

    Buy good companies with good dividends and let those dividends ride! (Think dividend aristocrats.) Then take some chances with market changers (maybe SSYS, TSLA, Z, FB). One GREAT stock can make up for many poor stocks. (I had the opportunity to buy Applie at $3 - but was too afraid of a penny stock that only had computers in schools!)

    I really wish investing in the stock market was available to the average person when I graduated from college. What a game changer when you don't need a broker or large amounts of money!

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Kingkarn Amjaroen

Kingkarn Amjaroen is a financial analyst taking an interest in the basic materials, retail and financial sector.

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