Are you approaching or in your forties and wondering whether you have enough saved for retirement?
If so, you’ll want to look into how your tax-free savings account (TFSA) and registered retirement savings plan (RRSP) stack up compared to others.
While other Canadians’ TFSA and RRSP balances don’t tell you how much you need to retire, they tell you quite a bit about how your own account shapes up. With that in mind, here are the average TFSA and RRSP balances for Canadians who are roughly 40 years old.
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TFSA: Around $20,000
According to the most recent StatCan data (2023), Canadians in their early forties have $20,000 saved in their TFSAs on average. That is not an insignificant sum of money if you think of how much it can grow. If you plan to retire at age 65, then you get 25 years of compounding from age 40 until you start making withdrawals. Historically, the Canadian stock market has delivered about a 10% per year return on average. $20,000 compounded at 10% over 25 years grows to $216,694. This is a pretty significant sum of money, though not quite enough to retire on. Continue reading, though, because if you’re like most Canadians, you have more money in your RRSP than your TFSA, and your odds of growing that account to a significant sum of money are far greater.
RRSP: Around $50,000
According to 2023 StatCan data, the average 40-year-old Canadian has $50,000 in his/her RRSP. That’s an amount that would grow to $541,735 if compounded over 25 years at 10% per year. If you add this amount to the amount I estimated, a $20,000 TFSA could grow to ($216,694), and you end up with $758,429. The vast majority of Canadians consider this an adequate sum to retire on, ignoring inflation.
However, if you look at the same StatCan data I’ve been citing in this article, you will see that most Canadians do not have $759,429 across their RRSPs and TFSAs by the time they turn 65. In the next section, I’ll explore how to make sure you do get the 10% annualized return that the retirement goals in this article depend on.
How to boost your RRSP or TFSA
Turning $70,000 worth of TFSA and RRSP money into a sum that you can retire on is very much doable. However, it’s not effortless. You need to take the time to find and buy high quality assets. Among the best assets are index funds, which are passive funds that let you simply buy the entire stock market. These funds are among the best for beginner investors to hold.
Consider the iShares S&P/TSX Capped Composite Index Fund (TSX:XIC), for example. It’s a Canadian index ETF built on the S&P/TSX Capped Composite Index, which represents nearly the entire Canadian stock market. Over the decades, the fund has averaged about a 10% annualized return with dividends reinvested.
XIC has many of the characteristics that investors look for in top quality funds. It has 220 stocks, which is a high amount of diversification. It has a 2.3% dividend yield, which is roughly average for its benchmark. It has a low management expense ratio – just 0.06%. Finally, it has a narrow spread (a wide spread increases the amount that market makers skim from you). Overall, it’s a quality fund that could easily turn a $20,000 TFSA and a $50,000 RRSP into a substantial amount of money.
