The Tax-Free Savings Account (TFSA) is a good place for Canadians to build retirement savings. According to a BMO Financial Group survey, among all age groups, boomers aged between 61 and 79 have the highest average TFSA value of over $72,000 in 2024. However, is a $72,000 TFSA balance enough to retire, especially when the cumulative contribution room was $95,000 in 2024?
The account’s tax-free withdrawals make it a crucial instrument for retirement. Most retirement accounts and pensions are taxable, from the Canada Pension Plan (CPP) to the Registered Retirement Savings Plan (RRSP). And their withdrawals can affect your Old Age Security (OAS), which is available to people under a certain income threshold. However, TFSA withdrawals do not affect OAS, making it your first preference for tax-free retirement income.
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How much Canadians need in their TFSA to retire
Considering the maximum CPP and OAS one can get at age 65, you can earn the equivalent of $25,928 in 2025. The income with the lowest tax bracket is $57,375. The absolute numbers won’t help if your retirement is 10 years later. However, CPP and OAS can fund 34–45% of the income in the low tax bracket. You need to arrange for the remaining 60–70% today so that it grows with inflation.
Standing today, your TFSA, RRSP, and other income options should give between $31,500 and $37,700 to cover the 70% deficit in annual income of $57,000.
On average, you need your retirement investments to pay you $35,000 annually at today’s inflation. This $35,000 should grow annually by 3–5% to adjust for inflation. Considering most Canadian dividend stocks provide a 6% yield, a $584,000 portfolio can give $35,000 in annual dividend income.
This $584,000 can be divided equally between a TFSA, RRSP, and a private pension. It means you need at least $195,000 in a TFSA balance that grows with inflation to retire.
But what if you don’t have $195,000 in your TFSA in 2025?
The highest average TFSA balance of $72,000 is only 37% of what is needed to retire. You need stocks that can bridge this gap and also beat inflation by compounding returns.
The iShares S&P/TSX Capped Information Tech Idx ETF (TSX:XIT) has a 10-year compounded annual growth rate (CAGR) of slightly over 20%. So if you invested $10,000 10 years ago, it is now worth $63,770. To adjust for a 5% inflation rate, the $10,000 amount should have grown to $16,300. Yet, the ETF value grew almost fourfold, helping you bridge the gap and come closer to the TFSA target.
The XIT tech ETF can continue to deliver strong double-digit returns as it will benefit from the artificial intelligence (AI) revolution, e-commerce, and other tech adoptions.
Like the XIT ETF, there are resilient growth stocks, like Shopify, and seasonal stocks like Air Canada that can help you generate 25–30% returns when bought at the dip in March and sold at the seasonal peak of February and July, respectively.
Compounding using dividend growth stocks
Another way to reach the inflation-adjusted $195,000 TFSA portfolio is dividend growth stocks, like Canadian Natural Resources (TSX:CNQ), and reinvesting their dividends in growth stocks. This oil and gas supplier has a cost advantage and incorporates the dividend amount in the cost. Its 25-year dividend growth history with a CAGR of 21% assures you that it can continue paying dividends for years to come.
A $10,000 invested in January 2016 would have bought you 667 shares, which are now worth $29,788. The dividend income from these shares has grown from $313 in 2016 to $1,567 in 2025. The 10-year cumulative dividend is over $8,600. If you reinvest this dividend, this money will also earn a return and help you achieve your TFSA portfolio value goal.
Investor takeaway
Saving your working income is not enough. You have to put your money to work. When both you and your money work, there will come a time when you can live off the money that is working for you.
