The Motley Fool

Millennials: Turn Your TFSA Contribution Into $9.5 Million by Retirement

Image source: Getty Images

While millennials are excellent at saving, there’s a reason many don’t invest. It comes down to debt. Generation after generation has taken on more and more debt, and millennials have it really bad. The debt-to-income ratio for this group is at 216%, according to Statistics Canada. That means you need cash, and you need it now.

Even more than that, you need to invest for your future. What happens when you pay down that debt but don’t have anything for an emergency? Or what if you want to retire but have nothing saved? I’m going to cover how you can start putting money away in a Tax-Free Savings Account (TFSA) and what that might turn into by the time you retire!

Build habits

Whether it’s to pay down debt or to save for retirement, you need to start building habits. For example, I’m self-employed so that means each paycheque I receive each month is different. But I still want to save and invest. So, that means instead of choosing a number I’ll invest each month, I choose a percentage.

I put 10% aside each month for investing in my TFSA and 10% aside for my Registered Retirement Savings Plan (RRSP). But I have a partner that helps me pay my bills. So, let’s just say instead you put 10% aside for paying down debt, and once that’s completed, you continue to put 10% aside to invest in your TFSA.

You’ve now built a habit that will last the rest of your life! Even easier, you can make automatic contributions if you have a steady income. Just make sure to update it as you get promotions! And, of course, make sure you don’t overcontribute to your TFSA or you’ll be penalized (what a problem to have)!

The numbers

Let’s say you make about $50,000 per year. That means you’ve put aside $5,000 each year towards investing. That’s amazing! But you can do even better by investing in dividend stocks. If you’re new to investing, I would highly recommend bank stocks like Toronto-Dominion Bank (TSX:TD)(NYSE:TD).

This bank has serious growth ahead, expanding throughout the United States and going more online than the other Big Six banks. It has come up with multiple ways for clients to pay down debt, which means it sees more revenue come in that the others. Over the last decade, shares have risen by 195% as of writing for a compound annual growth rate (CAGR) of 11.4%. And, of course, it offers a dividend yield of 3.78%, which has risen at a CAGR of 9.81% in that same time.

So, let’s say you continue to invest $5,000 each year for the next 30 years. We see the same amount of growth in shares and dividends. That means by the time you retire, you could have turned those payments of $417 per month into a whopping $9,352,332 in 25 years! That’s from investing a grand total of $125,000 over the years, and reinvesting dividends along the way. Thank you, compound interest!

Bottom line

It may not seem possible, but you can absolutely retire not just rich, but mega rich if you get into some solid habits. While I wouldn’t recommend putting all your investments in one place, this provides a strong example of what can happen when you build habits that last a lifetime. In only 25 years, you may be completely set to retire.

If you're ready to add some other stock options, definitely take a look at this list!

Just Released! 5 Stocks Under $49 (FREE REPORT)

Motley Fool Canada's market-beating team has just released a brand-new FREE report revealing 5 "dirt cheap" stocks that you can buy today for under $49 a share.
Our team thinks these 5 stocks are critically undervalued, but more importantly, could potentially make Canadian investors who act quickly a fortune.
Don't miss out! Simply click the link below to grab your free copy and discover all 5 of these stocks now.

Claim your FREE 5-stock report now!

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 Amy Legate-Wolfe owns shares of TORONTO-DOMINION BANK.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss an important event.

Iain Butler and the Stock Advisor Canada team only publish their new “buy alerts” twice a month, and only to an exclusively small group.

This is your chance to get in early on what could prove to be very special investment advice.

Enter your email address below to get started now, and join the other thousands of Canadians who have already signed up for their chance to get the market-beating advice from Stock Advisor Canada.