“How much should I have in my TFSA and RRSP accounts by my age?”
If you’re a financially savvy Canadian investor, you’ve probably asked yourself this question more than once.
While we all hope that the Canada Pension Plan (CPP) will provide for us in retirement, the cold, hard truth is that the average CPP payment (about $800 per month) is not enough to cover rent in a typical small city. Throw in $740 per month in OAS and you still aren’t getting enough to cover rent in Toronto or Vancouver.
In the old days, employees could count on generous employer-sponsored pensions to pay their way, but fewer and fewer employers are offering those these days. So, you need to think about what you’ve got in your TFSA and RRSP accounts, and whether they can pay for your retirement. In this article, I’ll share what a typical 45-year-old has in their TFSA and RRSP accounts, so you can gauge your own performance by comparison.
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TFSA and RRSP accounts: The differences
Before going any further, I should briefly touch on the difference between TFSA and RRSP accounts. The two are similar, but ultimately different.
The TFSA is an account that exempts investments held within it from taxation forever. From the minute you deposit funds to a TFSA to the minute you withdraw them, the money – and any assets bought with it – is shielded from tax.
The RRSP is a little different. Any funds you contribute to your RRSP give a tax deduction. If your marginal tax rate is 30% and you contribute $10,000 to an RRSP, you save $3,000 in taxes. The downside is that RRSP contributions are taxable on withdrawal. The hope is that you will be in a lower tax bracket when you retire; but either way, a long period of tax-free compounding is valuable.
Average TFSA balance at 45: About $20,000
According to StatCan data, the average 45–49-year-old TFSA holder had between $20,000 and $21,200 in his/her TFSA when data was last published in 2023. The average for a 45-year-old is near the bottom of that range, as TFSA balances tend to increase with age (until a trend reversal very late in life). So, $20,000 is probably a good estimate for 45-year-old Canadians.
Average RRSP balance at 45
The median balance for RRSP holders aged 45–54 was $70,000 to $72,600. Again, 45 years is near the bottom of this age range, so the median for 45-year-old Canadians specifically is likely about $70,000.
Where to invest your RRSP and TFSA funds
As we’ve seen, the median 45-year-old RRSP and TFSA account holder had about $90,000 held between both accounts in recent years. That amount if invested wisely could grow to a few hundred thousand by the time the holder is 60.
The question is, how do you invest wisely?
A complete answer to that question is beyond the scope of this article, but one stock that might merit inclusion in a diversified retirement portfolio is Fortis Inc (TSX: FTS). As a Canadian dividend stock, it is fully tax-free if held in an RRSP or TFSA (some U.S. dividend stocks are taxed even when held in TFSAs). The stock yields about 3.5%, so it provides considerable income. With 51 consecutive years of dividend hikes under its belt, the stock has stood the test of time. Finally, the underlying company’s maintenance CAPEX program will reportedly increase the rate base by 7% compounded annually over five years. Fortis delivered for investors in the past, and the ingredients for good future performance are still in place.
