Have you ever wondered whether your tax-free savings account (TFSA) is up to par with TFSAs held by others your age?
It may seem like a ‘vanity metric,’ but knowing where you stand in the savings game compared with your peers is a valuable thing. Among other things, it provides you with motivation to continue saving and investing.
Now, if you’re very young or well into retirement, obsessing over your relative wealth compared to your peers may not be the best idea. In youth, temporarily going into debt for the sake of education is often worth it; in old age, it’s your absolute amount of portfolio income that matters, not your ranking compared to others. Around the age of 44, on the other hand, it may make sense to take stock of where you stand in the crowd.
Here, I’ll estimate the average TFSA balance at age 44 in Canada and share some ideas about what you can do to increase your TFSA balance.
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Between $35,000 and $40,000
According to various online sources, the average TFSA balance in the 35-44 age bracket is between $30,000 and $40,000. Since peoples’ savings tend to increase during their late thirties and forties, the exact figure for age 44 is likely near the upper end of this range. So, I’m pegging the average at 44 specifically at somewhere between $35,000 and $40,000.
Now, $35,000 to $40,000 might not sound like much. However, if you have that much in a TFSA, along with $100,000 in an RRSP and a $500,000 house that’s 50% paid off, then you’ve got about $390,000 in net worth. That’s not bad for somebody with at least two decades of working life remaining.
On the other hand, if you’re feeling like you need a larger TFSA balance, that motivation could serve you well. Here are some ways to increase your TFSA balance gradually over time.
How to grow your TFSA
There are basically two ways to grow your TFSA:
- Contribute regularly
- Invest responsibly
Some definitions are in order here. If you are 33 and have never opened a TFSA, you have $95,000 in unused contribution room and can contribute to your heart’s content — up to $95,000. If you’re younger than 33 and/or have made past contributions, you have less contribution room and have to watch it with contributions, lest you get hit with the dreaded over-contribution tax. If you aren’t sure what your contribution limit is, you can check it on the CRA’s MyAccount.
Some good TFSA investment ideas
As for the investing part of the equation, generally speaking, diversified is the way to go. The more you spread out the risk in your portfolio, the less ‘specific’ risk you assume. For this reason, index ETFs like the iShares S&P/TSX Capped Composite Index Fund (TSX: XIC) are often good ideas.
XIC is a fund that has a lot of things going for it. First, it includes 230 stocks, making it very diversified. Second, as a Canadian fund, it has most sectors pretty well represented, unlike your typical U.S. fund that is massively overweight in technology. Third, it has a very tiny 0.04% management fee. Fourth and finally, it is a very liquid and widely traded fund, which limits the amount of money its investors lose to bid-ask spreads. On the whole, XIC is a worthy TFSA holding for many Canadians.
