How to Earn Big TFSA Income to Set Yourself Up for Retirement

With the right moves, a TFSA can bring in incredible income for retirement — or even in just the next three years!

| More on:

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Canadians are likely stressed out right now when it comes to their finances. But it’s likely particularly bad for those who are trying to save for retirement. You’re watching your investments perhaps sink lower and lower. And no amount of dividend income is going to suddenly turn this around.

However, if you’re looking to set yourself up for retirement in the long run, then it’s a great time to get started. With shares of blue-chip companies down right now, you may not see these prices again! But where and how should you invest? Today, we’re going to cover just that.

Consider the TFSA

One of the best places to store your cash for retirement is in the Tax-Free Savings Account (TFSA). I’m not saying you should ignore the Registered Retirement Savings Plan (RRSP) — far from it. Instead, consider contributing to both regularly.

But the benefit of the TFSA is that you can invest and never worry about taxes, and there are no withdrawal limits! While you do have to stay within contribution limits, over time, you could create a mountain of income that won’t be taxed. Furthermore, there is no period of time where you have to take the cash out, as with the RRSP.

So, here is how you go about creating a large income.

Contribute often

If you want to save enormous income in your TFSA for retirement, you need to contribute often. But that doesn’t mean you should contribute a lot of cash. Instead, look over your budget with a fine-tooth comb. See how much you have left after spending what you need to spend in the last three to six months.

From there, what’s left? Try to come up with a reasonable amount you can contribute to your TFSA month after month after month. Furthermore, make it automatic! You can simply go into your TFSA and create automated contributions that will be taken from your account without you having to think about it. These can always be cancelled or changed. But the point is, you’ll start creating savings right away.

Let’s say you put aside $500 each month; that’s $6,000 per year! Do that every year for 20 years, and you’ll have $120,000!

Unfortunately, that’s not enough

As much money as that is, $120,000 isn’t enough to retire on. Instead, you’re going to take another step further and start investing. What’s more, you should consider investing in dividend stocks. This way, the cash you get from dividends can be used to reinvest back into your portfolio. Do this again and again, and you’ll achieve enormous income.

For example, let’s look at what three years of reinvesting looks like with this method. You put in $6,000 each year to a safe company like Fortis (TSX:FTS) with a dividend yield of 4.41%. This dividend remains safe thanks to its investment in essential utilities. Plus, it’s a Dividend King as of this year, with over 50 years of consecutive dividend increases! Dividends have risen by a compound annual growth rate (CAGR) of 6.3%. Shares have risen by a CAGR of 5.4%.

Bottom line

With this information on hand, let’s see what an investment in Fortis stock could create in just three years, just by looking at past performance as an indicator.

YearShare PriceShares OwnedAnnual Dividend Per ShareAnnual DividendAfter DRIP ValueAnnual ContributionYear End Stock PriceNew Shares PurchasedYear End Shares OwnedNew Balance
1$54111$2.36$261.96$6,255.96$6,000$56.92105216$12,294.72
2$56.92216$2.51$542.16$12,836.88$6,000$59.99100316$18,956.84
3$59.99316$2.67$843.72$19,800.56$6,000$63.2395411$25,987.53

In just three years, an $18,000 investment could create a portfolio of almost $26,000! That’s almost $10,000 more just from reinvesting dividends and regular contributions.

Should you invest $1,000 in Fortis right now?

Before you buy stock in Fortis, consider this:

The Motley Fool Stock Advisor Canada analyst team just identified what they believe are the Top Stocks for 2025 and Beyond for investors to buy now… and Fortis wasn’t one of them. The Top Stocks that made the cut could potentially produce monster returns in the coming years.

Consider MercadoLibre, which we first recommended on January 8, 2014 ... if you invested $1,000 in the “eBay of Latin America” at the time of our recommendation, you’d have $20,697.16!*

Stock Advisor Canada provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month – one from Canada and one from the U.S. The Stock Advisor Canada service has outperformed the return of S&P/TSX Composite Index by 29 percentage points since 2013*.

See the Top Stocks * Returns as of 3/20/25

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 has no position in any of the stocks mentioned. The Motley Fool recommends Fortis. The Motley Fool has a disclosure policy.

Confidently Navigate Market Volatility: Claim Your Free Report!

Feeling uneasy about the ups and downs of the stock market lately? You’re not alone. At The Motley Fool Canada, we get it — and we’re here to help. We’ve crafted an essential guide designed to help you through these uncertain times: "5-Step Checklist: How to Prepare Your Portfolio for Volatility."

Don't miss out on this opportunity for peace of mind. Just click below to learn how to receive your complimentary report today!

Get Our Free Report Today

More on Dividend Stocks

four people hold happy emoji masks
Dividend Stocks

The Best Canadian Dividend Stocks to Buy in April 2025

Canadian dividend stocks are some of the best options out there, and these few look like some of the best.

Read more »

Canadian dollars are printed
Dividend Stocks

How I’d Use $10,000 to Transform My TFSA Into a Cash-Generating Machine

It may be grim out there, but there are plenty of sky-high dividend yields to choose from on the TSX…

Read more »

Canada day banner background design of flag
Dividend Stocks

Top Canadian Stocks to Buy Right Now With $5,000

Looking for some safe, long-term stocks? These Canadian stocks are where you should look first.

Read more »

Car, EV, electric vehicle
Dividend Stocks

Outlook for Magna Stock in 2025

Magna stock has sunk into the toilet, but it could now be one of the best undervalued stocks out there.

Read more »

alcohol
Dividend Stocks

Why I’d Consider These 3 Blue-Chip Dividend Stocks for a $20,000 Lifelong Investment

In a market correction, it’s essential to focus on blue-chip stocks that offer stability and long-term growth potential.

Read more »

Canadian dollars are printed
Dividend Stocks

Transform Your TFSA Into a Cash-Creating Machine With $14,000

Investing a total of $14,000 across these three stocks could earn you more than $1,039 in tax-free income each year.

Read more »

coins jump into piggy bank
Dividend Stocks

Where I’d Invest $12,000 in Canadian Stocks for Reliable Dividends

Want reliable dividends? Here's a trio of stocks that can provide a juicy income stacked for growth, even with a…

Read more »

Young Boy with Jet Pack Dreams of Flying
Dividend Stocks

Beginner Investors: 4 Top Canadians Stocks to Buy in 2025

If you're new to investing and looking for some Canadian stocks that are worry free, here's where to go.

Read more »