Getting close to retirement? Let’s look at how you might stack up. As of writing, the average Tax-Free Savings Account (TFSA) balance for a 55-year-old in Canada is around $70,000. By this age, many Canadians have had a few years to take advantage of the annual contribution limits. They have steadily grown since the TFSA’s introduction in 2009. If you’ve been diligent about contributing and investing, you might find your balance growing nicely – especially with the power of compounding working its magic! But don’t worry if you’re not quite there yet. There’s still plenty of time to catch up. So let’s look at how.
Source: Getty Images
Not enough
While $70,000 in your TFSA sounds like a nice chunk of change, it’s probably not enough to fully support you in retirement. Think about it. A retirement can last 20, 30, or even more years. And with the rising cost of living, $70,000 won’t stretch as far as you might hope. Sure, your TFSA offers tax-free growth, but even with solid investments, withdrawing from that balance over a long retirement might feel more like nibbling at crumbs than enjoying the feast you imagined.
To really feel secure, you’ll likely need a more robust strategy that includes a mix of pensions, savings, and other investments. Many financial experts recommend aiming for several hundred thousand dollars in savings to cover both the basics and any unexpected expenses that pop up along the way. So while your TFSA is a great start, it’s wise to think of it as one piece of the larger retirement puzzle, rather than the whole picture.
How to boost it
To boost that TFSA balance before retiring at 65, one of the best strategies is to maximize your contributions each year. For 2024, you can stash away $7,000, and if you haven’t been maxing out in previous years, you may have even more room to catch up. Setting up automatic transfers to your TFSA can make saving easier. That way you’re building that balance without even thinking about it. And don’t let your money just sit there, invest it! Stocks, exchange-traded funds (ETF), or dividend-paying assets can help your money grow much faster than keeping it in cash. All thanks to the power of compounding returns over time.
Another smart move is to reinvest any gains or dividends. Instead of pulling out your earnings, let them snowball within your TFSA since the tax-free growth means you keep every penny of profit. If you get a raise or a bonus at work, consider funnelling some of that extra cash into your TFSA. It might feel like a small effort now, but it can make a huge difference when you’re ready to retire. Lastly, don’t forget to review your portfolio regularly to ensure your investments align with your retirement goals.
Safe consideration
Vanguard Growth ETF Portfolio (TSX: VGRO) could be one of the best options to help boost your TFSA balance. It offers a balanced blend of growth and income with a solid track record. With 80% of the portfolio in stocks and 19% in bonds, VGRO provides a nice mix of equities for growth and bonds for stability. The ETF has shown an impressive year-to-date return of 15.9%. So this means it’s been growing steadily in value. Great news for those looking to maximize their TFSA potential. Plus, its current yield of 2.4% adds an extra layer of income generation – all while benefiting from the tax-free advantages of a TFSA.
Another key reason VGRO stands out is its diversification. The ETF covers a wide range of sectors, including Financial Services (20.41%) and Technology (19.76%), giving you exposure to some of the strongest sectors in the market. With a reasonable price-to-earnings ratio of 17.5 and a 52-week high of $36.44, VGRO is priced attractively given its historical performance. The volume and net assets show that it’s also a popular and highly liquid ETF, which means you can trade it easily. Overall, VGRO’s well-rounded portfolio makes it an ideal choice for growing your TFSA with both growth potential and built-in stability from bonds.
