The Motley Fool

How to Retire at 55 With $1,000,000 in Your TFSA

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Retiring early is always the dream, but sometimes it can seem like a bit of a fantasy. However, with the right strategy, it’s certainly not impossible. Below, I’ll show you how, with a good investment, you can achieve long-term growth and build a significant nest egg that can help you during your old age.

I’ll use Enbridge as an example here. The stock pays a good dividend, and it should increase in value over the years. While the past five years may not have been particularly kind to oil and gas stocks, we are starting to see a bit more stability in the industry, and it wouldn’t be unreasonable to expect that, on average, the stock will grow in value. With a solid business model that’s allowed the company to consistently post a profit, Enbridge is one of the safer oil and gas investments you can make today.

Even though the company has a solid track record of growing dividends, I’ll assume for the purpose of this example that it’ll stay constant at around 6%. I’ll also assume that it averages a growth rate of 8% per year, which should be attainable as long as the oil and gas industry doesn’t see any big shocks again. Over the past year, Enbridge has risen 11% in value, and so using 8% should add some conservatism to the following example.

The target amount I usually set for retirement is $1,000,000. The reason being is that by reaching that with a dividend of 5%, you could generate $50,000 a year in tax-free income (assuming this is all within a TFSA), which could put you in a good position, especially if you’ve got any other sources of income to add on top of that. Getting to $1,000,000, however, is going to take some commitment.

If you’re starting early on, which is the assumption in this example, then I’ll assume you wouldn’t have a lot saved up and instead will need to build on your savings over the years. By putting aside $500 every month and contributing about $6,000 a year, it would take a little more than 31 years to hit the $1,000,000 mark. I’ll also assume that dividends are not re-invested, and that the TFSA as we know it remains intact all these years.

Age Year Total Contributions Beginning Portfolio Balance Growth Ending Portfolio Balance Dividends Total Dividends Portfolio + Dividends
24 1 $6,000 $6,000 $480 $6,480 $360 $360 $6,840
25 2 $12,000 $12,480 $998 $13,478 $720 $1,080 $14,558
26 3 $18,000 $19,478 $1,558 $21,037 $1,080 $2,160 $23,197
27 4 $24,000 $27,037 $2,163 $29,200 $1,440 $3,600 $32,800
28 5 $30,000 $35,200 $2,816 $38,016 $1,800 $5,400 $43,416
29 6 $36,000 $44,016 $3,521 $47,537 $2,160 $7,560 $55,097
30 7 $42,000 $53,537 $4,283 $57,820 $2,520 $10,080 $67,900
31 8 $48,000 $63,820 $5,106 $68,925 $2,880 $12,960 $81,885
32 9 $54,000 $74,925 $5,994 $80,919 $3,240 $16,200 $97,119
33 10 $60,000 $86,919 $6,954 $93,873 $3,600 $19,800 $113,673
34 11 $66,000 $99,873 $7,990 $107,863 $3,960 $23,760 $131,623
35 12 $72,000 $113,863 $9,109 $122,972 $4,320 $28,080 $151,052
36 13 $78,000 $128,972 $10,318 $139,290 $4,680 $32,760 $172,050
37 14 $84,000 $145,290 $11,623 $156,913 $5,040 $37,800 $194,713
38 15 $90,000 $162,913 $13,033 $175,946 $5,400 $43,200 $219,146
39 16 $96,000 $181,946 $14,556 $196,501 $5,760 $48,960 $245,461
40 17 $102,000 $202,501 $16,200 $218,701 $6,120 $55,080 $273,781
41 18 $108,000 $224,701 $17,976 $242,678 $6,480 $61,560 $304,238
42 19 $114,000 $248,678 $19,894 $268,572 $6,840 $68,400 $336,972
43 20 $120,000 $274,572 $21,966 $296,538 $7,200 $75,600 $372,138
44 21 $126,000 $302,538 $24,203 $326,741 $7,560 $83,160 $409,901
45 22 $132,000 $332,741 $26,619 $359,360 $7,920 $91,080 $450,440
46 23 $138,000 $365,360 $29,229 $394,589 $8,280 $99,360 $493,949
47 24 $144,000 $400,589 $32,047 $432,636 $8,640 $108,000 $540,636
48 25 $150,000 $438,636 $35,091 $473,726 $9,000 $117,000 $590,726
49 26 $156,000 $479,726 $38,378 $518,105 $9,360 $126,360 $644,465
50 27 $162,000 $524,105 $41,928 $566,033 $9,720 $136,080 $702,113
51 28 $168,000 $572,033 $45,763 $617,796 $10,080 $146,160 $763,956
52 29 $174,000 $623,796 $49,904 $673,699 $10,440 $156,600 $830,299
53 30 $180,000 $679,699 $54,376 $734,075 $10,800 $167,400 $901,475
54 31 $186,000 $740,075 $59,206 $799,281 $11,160 $178,560 $977,841
55 32 $192,000 $805,281 $64,422 $869,704 $11,520 $190,080 $1,059,784

Bottom line

This is just one strategy that utilizes a high dividend. It’s not the only approach that you can take as you can focus less on dividends on more on growth, and that can result in higher returns. But with Enbridge, you’re investing in a stock that should generally be pretty stable over the years. And should you decide to swap out into another stock, you can always do that as well.

The key to reaching the $1,000,000 mark in your TFSA is being committed to putting aside money every month that you can invest in a blue-chip stock like Enbridge. And if you can’t start at the age of 24, you can catch up in later years when your income may be higher and your debt is lower so that you can invest a larger lump sum or make larger annual investments.

As long as you’re saving money and investing it into good, quality stocks, you’ll have a very good chance of being able to have a lot saved up by retirement.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor David Jagielski has no position in any of the stocks mentioned. The Motley Fool owns shares of Enbridge. Enbridge is a recommendation of Stock Advisor Canada.

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