Retiring at 50 is an ambitious goal, and you must have a firm resolve to succeed. According to retirement experts, time should be on your side if you want early liberation from the daily grind. Moreover, the money you put in savings need to be invested 100% of the time.
Younger Canadians have higher chances of success because of the Tax-Free Savings Account (TFSA). The one-of-a-kind investment account was created to assist Canadians meet their savings goals and build retirement wealth.
The TFSA has significant benefits, especially tax-free money growth and withdrawals. Any investment income, interest or capital gains on the contributions are never subject to tax. You can also carry over unused contribution rooms to future years.
Three steps
The first step to the $1 million and early retirement journey is to start investing as soon as possible. A 25- or 30-year window is ideal, but it means you must be 20 or 25 years old today. Second, maximize your TFSA contributions every year. TFSA contribution rooms accumulate every year. The cumulative limit since 2009 is now $81,500.
The third and equally crucial step is the choice of investments. Big bank stocks are staples in a TFSA portfolio. Canada’s top two banks are smart choices for their attractive yields, safety of dividends, and payout consistency. Both TSX dividend stocks will not disappoint.
Big bank stocks
Royal Bank of Canada (TSX: RY) pays a 4% dividend, while Toronto-Dominion Bank (TSX: TD) yields 4.07%. The share price of the former ($128.15) is higher than latter’s ($87.48). Let us use the respective yields and the maximum TFSA cumulative limit of $81,500, as the investment amount for the sample computations.
If you keep reinvesting the quarterly dividends from RBC and TD, the final TFSA balance in 30 years is $268,981.53 and $274,632.27, respectively. The results illustrate the power of compounding in a TFSA when you reinvest the dividends. Also, higher dividend yields will bring you closer to your $1 million TFSA goal.
TFSA holdings for life
RBC and TD aren’t the highest dividend payers on the TSX, but your money should be safe. Even if you can’t reach $1 million or retire at 50, you can hold either bank stock in your TFSA for life. You’ll have regular retirement income in addition to the Canada Pension Plan (CPP) and the Old Age Security (OAS).
Both giant banks are in expansion modes, notwithstanding the challenging environment. On October 5, 2022, RBC announced that it’s buying MDBilling.ca, a cloud-based platform that automates medical billing for Canadian physicians. Beside the push towards healthcare, the $175.66 billion bank hopes to win more clients in the sector.
TD is awaiting regulatory approvals for two strategic acquisitions in the United States. The $153.62 billion Canadian lender will become a top-six bank by asset size in America with the takeover of First Horizon. TD’s acquisition of independent dealer Cowen will accelerate its long-term growth strategy and strengthen its presence in the prime brokerage market.
Make TFSA contributions
Saving in 2022 is difficult, if not stressful, because of high inflation. However, it would help to contribute some money to your TFSA. If you’re worried about market volatility, buy RBC or TD stocks to be safe.
