Planning your retirement can be challenging. The Canada Revenue Agency (CRA) determines the monthly Canada Pension Plan (CPP) payout, which is $817 (average) in 2023. But when you create your retirement portfolio, you are in control of your investments and can estimate the passive income your retirement portfolio can give. In this article, I will take a situation where you start with $100,000 in your Tax-Free Savings Account (TFSA) and design a plan for when to retire.
Step #1: Determine your monthly payout
To prepare a model portfolio, let’s say you were to retire in 2023. Today, an average person needs $3,500/month for daily expenses, of which, the CPP can give you around $800. You could consider retiring if your TFSA portfolio pays out $2,700/month, or $32,400/year, in passive income.
Step #2: Prepare an investment table with estimated returns
Some of the safest dividend stocks on the TSX have a 6% yield. You need $540,000 in savings to earn $32,400/year in passive income on the 6% yield.
To grow your retirement portfolio from $100,000 to $540,000, you can consider investing in growth and dividend stocks to generate 10% average annual returns. To accelerate the returns, you can invest $1,000 every month.
Two stocks to generate 10% average returns
Diversify your $100,000 savings across five to six stocks that can help you generate over 10% average return. Here are two stocks to get you started.
Descartes Systems (TSX:DSG) is a resilient growth stock that increases the stock price at a 15-20% compound annual growth rate (CAGR) in five years. It provides supply chain management solutions that help companies plan logistics and trade. Any challenge in trade is an opportunity for Descartes to sell its solutions. For instance, the Russia-Ukraine war increased the demand for its global trade intelligence solutions.
The mid-cap stock is a buy at a price below $100, as it can continue growing its revenue by 12-15% annually. A $10,000 investment in Descartes in May 2013 is over $100,300 today. If the stock can generate even half this growth, it can convert $10,000 into $50,000 in 10 years.
For dividend stock, you can invest in telecom giant BCE (TSX:BCE), which has a yield of more than 6% and has been growing its dividends at a 5% CAGR. BCE has forayed into 5G, which brings in more subscriptions and higher rate plans. Once 5G sets the stage for devices connected to the internet, more 5G devices could bring more cash flow to support dividend growth.
A $10,000 amount invested in BCE in May 2013 would now be over $20,400 if you accumulated all the dividends, giving a 7.3% average annual return.
Step #3: Determine when you want to retire
Assuming your $100,000 savings and $12,000 annual investment earn 10% annual returns (reinvested), your returns could look like the table below:
| Year | Investment | Investment Return @ 10% | Total Amount | Dividend @ 6% |
| 2023 | $100,000.0 | $6,000.0 | ||
| 2024 | $12,000 | $10,000.0 | $122,000.0 | $7,320.0 |
| 2025 | $12,000 | $12,200.0 | $146,200.0 | $8,772.0 |
| 2026 | $12,000 | $14,620.0 | $172,820.0 | $10,369.2 |
| 2027 | $12,000 | $17,282.0 | $202,102.0 | $12,126.1 |
| 2028 | $12,000 | $20,210.2 | $234,312.2 | $14,058.7 |
| 2029 | $12,000 | $23,431.2 | $269,743.4 | $16,184.6 |
| 2030 | $12,000 | $26,974.3 | $308,717.8 | $18,523.1 |
| 2031 | $12,000 | $30,871.8 | $351,589.5 | $21,095.4 |
| 2032 | $12,000 | $35,159.0 | $398,748.5 | $23,924.9 |
| 2033 | $12,000 | $39,874.8 | $450,623.3 | $27,037.4 |
| 2034 | $12,000 | $45,062.3 | $507,685.7 | $30,461.1 |
| 2035 | $12,000 | $50,768.6 | $570,454.2 | $34,227.3 |
| 2036 | $12,000 | $57,045.4 | $639,499.7 | $38,370.0 |
| 2037 | $12,000 | $63,950.0 | $715,449.6 | $42,927.0 |
| 2038 | $12,000 | $71,545.0 | $798,994.6 | $47,939.7 |
| 2039 | $79,899.5 | $878,894.1 | $52,733.6 |
Let’s go through the table together. Your $100,000 savings generate 10% returns at the start of 2024. You reinvest the returns plus contribute $12,000 from your pocket in 2024. Your portfolio amount could be $122,000 ($100,000+$10,000+$12,000) at the end of 2024. In 2025, you earn a 10% return on $122,000 and add another $12,000.
After five years, your $100,000 portfolio could double to over $202,000. A 6% yield on $202,000 could give you over $12,000/year in passive income.
I’ve added a dividends column to give you a hint of how much passive income your portfolio could generate at a 6% dividend yield. If we suppose you need $30,400/year to retire, you can stop investing after 2034 and shift your portfolio to dividend stocks that give 6% annual dividends and even grow their dividends in line with inflation.
