If you’re a Canadian investor, then it’s likely you’ve already heard of the Tax-Free Savings Account (TFSA). This method of savings was originally introduced as another retirement savings account — one that retirees could use to save cash, tax-free, and withdraw as much as they wanted at any time.
Since then, it’s grown into so much more. Investors who were 18 in 2009 now have access to $88,000 in TFSA contribution room. That grew back in January by $6,500 and could very well increase by that amount again this year.
But while that’s all and good, what happens when you enter retirement?
Nothing!
That is to say, the TFSA remains the same no matter what age you are. That’s part of the huge benefit! There are very few restrictions when it comes to the TFSA, which is why it can be a big influence on creating passive income in retirement.
How? By investing again and again over the years and staying within the contribution limits, you can create enormous returns. In that time, by reinvesting your dividend income from dividend stocks, you can also create enormous passive income through dividends alone!
Today, we’re going to look at this using the example of Great-West Lifeco (TSX:GWO).
Insurance and finance
Insurance and finance are two key areas to get exposure to for your TFSA portfolio — especially if you’re hoping for sustained returns and dividends. That’s because these sectors tend to do well when interest rates are high. They can therefore charge more in interest from clients, bringing in more cash.
This allows these companies to save for a rainy day and for acquisitions. Those rainy-day funds have helped GWO stock increase its dividend year after year. What’s more, it’s grown through acquisitions around the world, becoming an umbrella company for multiple insurance companies.
Now, GWO stock offers a dividend yield of 5.56%. However, it still trades at just 15.75 times earnings. This puts it near value territory, allowing for a great deal with even better passive income.
What you could bring in
Let’s say you’ve been investing in GWO stock for the last several years. Back in 2009, you put $20,000 into GWO stock and let it climb. During that time, you let it sit, accumulating passive income through dividends during that time. Now let’s see what that $20,000 would get you in 2023.
| COMPANY | RECENT PRICE | NUMBER OF SHARES | DIVIDEND | TOTAL PAYOUT | FREQUENCY | PORTFOLIO TOTAL |
| GWO – 2009 | $23 | 870 | $1.23 | $1,070.10 | quarterly | $20,000 |
| GWO – 2023 | $38 | 870 | $2.08 | $1,809.60 | quarterly | $33,060 |
In that time, without even reinvesting dividends, you would have made additional returns of $13,060! Plus, starting out with $1,070 in 2009, you would now make $1,810 in passive income each year. That comes to about $150 per month!
Now, of course, reinvesting dividend income would be even better. What’s more, this could be just the beginning of your retirement savings plan. But altogether, you could easily hit $150 by investing and even just letting it ride for years to come.
