Both the Tax-Free Savings Account (TFSA) and Registered Retirement Savings Plan (RRSP) are excellent options for long-term investors looking to create their big and beautiful retirement.
Like a Traditional 401(k) or similar plans in the U.S., the RRSP is the tool of choice for those looking to put pre-tax income into a retirement account, and take the tax benefit today. For higher-income earners in Canada, this benefit can outweigh those of U.S. investors looking to invest in a 401(k), due to the higher tax rates seen in Canada up front.
But for those looking to put after-tax dollars to work in a truly tax-advantaged account, the TFSA may be the better pick. This vehicle is more similar to the Roth IRA in the U.S., and allows capital to be withdrawn in retirement completely tax-free. That means investors can benefit from decades of growth by putting capital to work in such accounts at a young age.
With many looking to see if they’re on track in their financial journeys, let’s dive into what the average Canadian TFSA and RRSP balances are at age 45 and how one stacks up to these metrics (both actual and projected).
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Average TFSA balance at 45
Canadians at age 45 hold an average TFSA balance of around $21,177 as of the most recent data I could find on this key account. With a contribution limit of $7,000 per year, this implies that the average Canadian has invested around three years’ worth of TFSA contributions thus far (though much of this balance is likely tied to growth). Actually parsing out how much of this sum was invested via contributions or gained via growth is hard to do. But you get the point.
In such accounts, I’m aligned with many personal finance experts who suggest growth stocks are best held in these funds. The more speculative or higher-growth investments one wants to choose as part of their diversification plan may be best-suited for such a fund. That goes double for those who are patient and willing to sit on these investments for a long period of time.
Personally, I think the most important thing with a TFSA is to make investments once a year (or periodically, whichever suits one best) and do nothing with that purchase after investing. Sitting and waiting for decades is what makes this account so powerful. I’m expecting to see greater investments over time as more Canadians realize the power of this account when it comes time to retire, but we’ll see.
Average RRSP balance at 45
In terms of the RRSP, one might expect to see a much higher number due to a higher contribution limit for individuals in these retirement accounts. They’d be correct.
The average RRSP balance for Canadians at age 45 sits just above $150,000. Now, the median is a lot lower, at around $70,000 (that’s the way averages and medians work). There is a small percentage of seven- or eight-figure accounts that drive this number higher.
But at age 45, many personal finance experts will tell you that having at least $150,000 in this account for retirement at age 45 is a decent goal. That would allow for a few decades of growth before retirement, in addition to the contributions one might expect to ramp up in the years leading to sailing off into the sunset.
