TFSA Investors: How to Create a $121K Retirement Nest Egg

In just a decade you could take one safe stock and create a retirement nest egg of $121,000, with passive income over $5,000 annually.

Canadian investors who have even been doing this for a while may still find they’re constantly dipping into their savings. It would be nice to say that you could start investing at 20, and leave everything alone for the next 30 years. But that’s not how life works.

There are kids, cars, homes, debt payments, most of which come in your earlier years. So it’s to be expected that by the time you’re in your forties, you may not have all that much to work with in terms of retirement savings.

It’s never too late to start, however. Which is why today, I’m going to help investors by creating a nest egg based on one principal: consistency.

Consistency equals riches

It’s true! If you can consistently invest the same amount each and every paycheque or month, or whatever works for you, that’s the surest path to riches. Even if you have around 20 years to work with, investing on a consistent basis can add up quickly.

But, of course, you’re at Motley Fool, which also means that you need to not only add cash to your savings, but also invest them. You can, therefore, turn a large portfolio of retirement income into not just a massive portfolio, but one that produces passive income from your investments!

So first thing is first. If you’re a Canadian making the average salary of about $66,000, let’s say you can contribute $500 per month towards your future retirement. You therefore will create automated contributions towards your savings account, investing it together with any dividends along the way.

An option to buy

If you’re wanting to create passive income for retirement, then you likely would enjoy having that every month. That’s why I would recommend investing in a top dividend stock like The Keg Income Royalties Fund (TSX: KEG.UN).

As a royalty fund, KEG stock is inherently less risky than its restaurant or retail peers. It receives income from its locations, but also from franchising and product sales. Royalty income increased over 35% year over year during its most recent earnings quarter, showing the benefit of having 197 more operating weeks on hand.

The stock now has a dividend yield at 7.22% as of writing, with shares fairly stable over the last year, despite the economic downturn and high inflation. It trades at just 10.3 times earnings as well, and its dividend is far higher than the average five-year yield of 6.73%.

Producing passive income

To see what a monthly investment of $500 could get you over the next decade, we’ll look at the compound annual growth rate (CAGR) of KEG stock. Shares have increased at a CAGR of 3.6%, with dividends rising at a CAGR of 1.7% in the last decade. Not huge, but stable. And it can still do the trick for your passive income portfolio.

YearShare PriceShares OwnedAnnual Dividend Per ShareAnnual DividendAfter DRIP ValueAnnual ContributionYear End Stock PriceNew Shares PurchasedYear End Shares OwnedNew Balance
1$16375$1.14$427.50$6,427.50$6,000$16.58387.66762.66$12,854.90
2$16.58762.66$1.16$884.68$13,739.59$6,000$17.17400.971163.63$20,624.24
3$17.171163.63$1.18$1,373.08$21,997.32$6,000$17.79414.451578.08$29,370.39
4$17.791578.08$1.20$1,893.69$31,264.09$6,000$18.43428.302006.38$39,157.78
5$18.432006.38$1.22$2,447.78$39,429.96$6,000$19.09442.532448.91$47,877.83
6$19.092448.91$1.24$3,036.65$50,914.48$6,000$19.78456.862905.77$59,951.17
7$19.782905.77$1.26$3,661.27$63,612.44$6,000$20.49471.513377.28$73,273.68
8$20.493377.28$1.29$4,356.69$77,630.37$6,000$21.23487.833865.11$87,987
9$21.233865.11$1.31$5,063.29$93,050.29$6,000$22.00502.874367.98$104,113.43
10$22.004367.98$1.33$5,809.41$109,922.84$6,000$22.79518.184886.16$121,732.16

And now, after putting just $500 away each month, you can have a total portfolio of $121,732.16 with dividends reinvested. That would give you annual passive income of $5,809.41 each year, on top of your returns.

Fool contributor Amy Legate-Wolfe has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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