Building Wealth in Retirement

After building up retirement savings, many Canadians enjoy a comfortable lifestyle when they retire. However, that doesn’t mean you have to stop thinking about money, investing and building wealth. After all, you’ve spent a lifetime creating wealth and you can continue to put those methodologies to work in your golden years. Whether you’re close to retirement or already retired, we’ve compiled a guide on building wealth in retirement.

What is considered wealth?

Wealth is often correlated directly to money and assets, but it can also refer to your lifestyle. Monetary wealth refers to savings, assets and investments, such as stock portfolios and real property. Non-monetary wealth includes your lifestyle, such as having a job you love or running a business that gives you the flexibility to spend time with your family.

Like many things in finance, wealth is quantifiable in the form of net worth. This only relates to your monetary wealth as non-monetary wealth is subjective. Net worth is calculated as your total assets minus your total liabilities. For example, let’s say you have an investment portfolio worth $100,000, a home worth $1 million, a cottage worth $500,000, and two mortgages with a combined obligation of $500,000. Your net worth would be $1.1 million ($100,000 + $1,000,000 + $500,000 – $500,000).

Ultimately, wealth is relative and personal. Some place greater emphasis on non-monetary wealth whereas others place a higher emphasis on monetary wealth. It’s all about your wealth goals, how you interpret wealth, and what you’re willing to do to build wealth!

What is the definition of wealth building?

Wealth building is the process of increasing net worth or adding to non-monetary wealth. Typically, building wealth occurs over a long period of time. When wealth is built over a short period, there is often a greater risk of “easy come, easy go.” Building wealth involves elements of saving, investing, and effective decision-making. The process can look very different for everyone based on how much is saved, where you invest, and what your wealth goals are. Furthermore, everyone has unique preferences on what kind of wealth they are working towards.

For many people, wealth building is a lifelong process that begins in early adulthood and continues throughout life. Building wealth at 50 may be different than when you were 25 but it’s never too late to change up your tactics or redefine your goals. Just because you are getting closer to retirement age, or already retired, doesn’t mean you can’t start or continue to build wealth.

Related Reading: When should I hire a wealth manager?

How to build wealth in Canada

The process of building wealth occurs in many different ways. Some prefer to invest in real estate, whereas others prefer to contribute to an investment portfolio, among other strategies. Fortunately, Canadians have access to numerous opportunities to build wealth, both before and after retirement. The benefit of being retired is you likely have more funds available to invest, plus free time to manage your investments. Continue reading for various strategies for building wealth in Canada.

Building wealth in real estate

When it comes to building wealth in retirement, real estate is often the first asset that comes to mind. And it’s no wonder why, real estate can generate significant income, hold lifelong savings, be sold for a profit in the future, and offer beneficial tax advantages. In addition, retirees usually have ample savings to put towards the purchase of the real estate.

By retirement age, many Canadians tend to own at least one property. After all, we all need a place to live. Some Canadians also own a second property, usually a cottage or other type of vacation property. However, not every Canadian owns investment real estate which is a property that generates income through short or long-term rentals.

Owning an investment property builds wealth in two ways. First, you’re earning rental income which does not require a lot of effort. For most, being a landlord is like a part-time job. Second, investing in rental property also builds equity and wealth over time in the form of capital gains. Finally, real estate can offer lucrative tax advantages. For example, you can deduct expenses related to maintaining the property from your rental income.

Not interested in renting out a property? No problem! There is also the opportunity to simply purchase and hold real estate. For some, this is buying a second home. For others, it could be purchasing land or real property with the intention of selling it for a profit in the future. Either way, owning real estate is an optimal strategy for building wealth in retirement.

How to use home equity to build wealth

Home equity is the portion of your home’s value that you own outright. It is calculated as the value of the property less outstanding obligations against it. For example, if your home is worth $1 million and you have an outstanding mortgage of $450,000, your home equity would be $550,000 ($1 million – $450,000).

There are various financial products available that allow you to access your home equity without selling the property. Home equity lines of credit (HELOC) and personal loans secured against your home equity are two examples. When used wisely, home equity can be a powerful tool for building wealth. The question becomes, where do you invest the home equity?

Once you have access to your home equity funds, you can do virtually anything with it. You could use it to purchase another property, finance improvements to real estate, as seed capital for a business, or put it into your investment portfolio. Whatever it is, just be confident you are spending your home equity where future value will be created. Remember, if you are unable to make payments on the financial product you used to access home equity, you risk losing your home.

How to build wealth in the stock market

In retirement, some individuals choose to become active traders on the stock market. Chances are you already have an investment portfolio, whether it’s non-registered or registered, like a TFSA or RRSP. With your freed-up time, you can learn how to choose the right stocks and time your investment decisions perfectly for optimized profits. Alternatively, if you have income, you can invest it long-term in your portfolio as opposed to being an active trader. Either option is a strategy for building wealth.

Here are a few tips on how to build wealth in the stock market for beginner active traders:

• Start with a diversified portfolio. By investing in a variety of different companies, you’ll minimize your risk and maximize your chances of success.
• Don’t put all your eggs in one basket. It’s important to have a mix of investments, including stocks, bonds, and cash. This will help you weather the ups and downs of the stock market and still make a profit.
• Know when to buy and sell. Timing is everything in the stock market. You need to know when to buy low and sell high to make money.
• Be patient. Rome wasn’t built in a day, and neither is wealth. It takes time to make money in the stock market, so don’t get discouraged if it doesn’t happen overnight. With patience and perseverance, you can achieve financial success. Just remember to always learn from your mistakes!

Building wealth through a business

Another way to build wealth in retirement is to pursue a business idea or invest in a startup by providing private equity. However, there is more risk involved with starting a business. On average, 20% of businesses fail in their first year and 60% fail within the first three years. In other words, about one in three startups fail. For this reason, you should be wary of starting a business as it doesn’t always build wealth.

With that being said, older people tend to have higher success rates in startups compared to their younger counterparts. This is due to lifelong wisdom, the application of skills acquired through life, and an existing understanding of how the world works. Furthermore, 30% of Canadian startups were founded and operated by individuals aged 50 and older. Even though there is more risk, there is an opportunity for a greater reward too!

Related Reading: Retirement Business Ideas

Best assets to buy to build wealth

We’ve gone over strategies on how to build wealth, but some may prefer to simply buy assets and let them appreciate over time. Not everyone wants to actively build wealth, but rather let it passively build over time. Here are a few of the best assets to buy if you want to build wealth during retirement:

• Real estate. Over time, real estate tends to appreciate. Several years from now, you can sell your investment for a profit or pass it on to your family.
• Stocks and bonds. Another popular option for building wealth during retirement is stocks and bonds. You don’t have to actively trade stocks and bonds to build wealth. Like real estate, stocks and bonds tend to appreciate in the long run if you hold onto them.
• Commodities. Commodities like gold and silver are always in demand, which makes them a great investment for those looking to build wealth during retirement. Plus, they tend to hold their value better than other assets, so you can feel confident that your investment will be worth something down the road.
• Art, jewelry and other passion investments. Valuables like art and jewelry also tend to appreciate over time. It can also be a great way to diversify your investments. Keep in mind that these passion investments can be more fickle than the other options!

What not to buy when increasing net worth

Certain assets or investments do not appreciate or build wealth over time. Some examples include cars, recreational vehicles, boats, yachts and private jets. These types of assets cost a lot to maintain, due to storage costs and repairs and maintenance. In addition, their value decreases over time due to depreciation. With that said, owning these types of assets can be a lot of fun and add to an enjoyable retirement. If you can afford the expense and acknowledge it’s not for the purposes of building wealth, then go for it!

How to build wealth after 50 and in retirement

In addition to the above, here are other strategies to build wealth past the age of 50 and into retirement:

• Use your RRSPs, TFSAs and other registered accounts. If you have money saved up in RRSPs and TFSAs, now is the time to start managing them wisely. With careful planning, you can use these accounts to build wealth during retirement while still enjoying the tax-sheltering benefits.
• Invest in dividend stocks. Dividend stocks can provide a great source of income during retirement, and they can also offer the potential for capital gains if the stock appreciates.
• Use credit wisely. While it may seem counter-intuitive, using credit cards and other credit can help you to build wealth. If you use your credit cards responsibly, you’ll start to build up a good credit score. A good credit score will open the door to better interest rates on loans and lines of credit, which can save you money in the long run. In addition, using credit to finance the purchase of wise investments builds wealth in the long run. Leveraging is key!
• Live below your means. This one may seem obvious, but it’s important nonetheless. If you want to build wealth during retirement, you need to be mindful of your spending habits and make sure you’re not spending more than you can afford. Living below your means will help ensure that your nest egg lasts as long as possible.
• Planning. Planning out your retirement and investments will save you from making impulsive or poor decisions. Consider working with a financial advisor or wealth manager to assist you during the process.

Want to learn more? Check out the Best Wealth Management Books for Canadians