Imagine you're in your first year of retirement. How much money would you budget for expenses to live comfortably?
Now do that budget for another 20 years.
People are living longer after retiring, but the bills keep coming. You may own your house outright, but we all know how expensive utility bills, food and even petrol are and will be in the future.
To make sure you have enough passive income, you want enough money saved to live on about 4% – 5% of the total, a standard rate of return that shouldn't eat into your principal too much.
If you think you need, let's say, $60,000 a year to live the kind of lifestyle you want, simply multiply that by 25 (a 4% return). $1.5 million would be the magic number.
If you have another 20 – 30 years before you retire, there is still time to reach this sum. You'll need a group of stocks that:
– generate high earnings growth to power share prices upwards and
– steadily increase dividends to compound returns faster
I think the two companies below could be solid earners for your retirement portfolio.
REA Group Limited (ASX: REA) is a great, fast growing company that has delivered strong returns over the past ten years. The operator of the number one property search website realestate.com.au has a number of overseas ventures and the company's latest acquisition may make REA Group a truly international company.
In partnership with media giant News Corp (NASDAQ: NWS), the company has acquired the third-largest U.S. property listings company Move Inc. (NASDAQ: MOVE) in a 20:80 split takeover. Move operates the move.com and realtor.com websites.
The property listing and advertising market in the U.S. is highly fragmented, with the number one and two companies Zillow Inc (NASDAQ: Z) and Trulia Inc (NYSE: TRLA) combined only controlling a small percentage of the total. This acquisition could set up REA Group for many more years of solid growth, so that's why I think it should have a place in long-term investment portfolios.
Woodside Petroleum Limited (ASX: WPL) is another well-established company in the growing energy sector. As more of the world's population is moving to urban areas, energy demands will rise. For example, India still has about 300 million people who don't even have electricity yet and that country could be the next China for economic and industrial growth.
Apart from being an LNG producer, Woodside plans to enter the energy markets to buy and sell surplus and uncontracted LNG supplies for third parties. The U.S. shale oil industry is close to starting to export, so Woodside can follow this trend of higher energy demand and be involved in a potentially lucrative transaction business.
The stock pays a surprisingly big 6.1% yield fully franked, but it is also one of my favourite blue chips for dividend growth, which is a real long-term money maker for investors.
