Once Canadian investors hit their mid-50s, there are large gaps in how big the average Canadian’s Tax-Free Savings Account (TFSA) becomes. For one thing, the TFSA only started in 2009. It’s still relatively new in the context of other retirement vehicles that typically need decades to compound.
Not only did this leave mid-50s investors with less lifetime contribution room than the younger generations, but it also left them suddenly juggling multiple big-ticket expenses such as mortgages and childcare costs.
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Factors that influence contributions
There are two key points here: how Canadians use the TFSA, and how much they can contribute. Long‑term TFSA growth depends on both steady contributions and choosing investments that can compound over time.
When it comes to income levels, that’s a huge differentiator. Households with higher incomes can contribute more and, by extension, invest more aggressively.
Contrast this to lower-income households that use the TFSA as a short-term savings buffer. Over time, this creates a clear line between TFSAs that continue to grow and those whose balances are frequently raided. Unused TFSA contribution room remains one of the biggest factors behind the wide gap between average and potential account sizes.
This leads to the other point of how the average Canadian’s TFSA is used. For many, the account is treated like a savings account, where cash is stored away or put into a GIC. This can prove to be limiting to long-term growth, especially when interest rates are lower.
How investing choices shape long‑term growth
Cash‑heavy TFSAs grow slowly. Even when interest rates move higher, as they have in recent years, cash and Guaranteed Investment Certificates (GICs) rarely match the long‑term market returns.
The alternative to that slower growth is to see the TFSA less as a savings account for cash and more as an investment account. By doing this, investors can reap the rewards of long-term compounding through broad market exchange-traded funds (ETFs) or stocks.
Broad‑market ETFs have historically delivered stronger long‑term TFSA returns than cash or GIC‑based approaches.
For those investors seeking to boost their TFSA over the longer term, one such example is Vanguard S&P 500 Index ETF (TSX: VFV).
The Vanguard 500 closely tracks the S&P 500, and by doing so, offers exposure to some of the largest U.S. companies on the market. Even better, the fund is diversified across the entire market, including finance, consumer goods, technology, healthcare, and others.
And because Vanguard 500 is a broad market fund, it offers a more diversified approach that translates into a quicker recovery during downturns.
In short, the fund offers the potential for higher long‑term returns when compared to fixed‑income or cash‑based approaches. Over multi‑decade periods, equity‑focused TFSA strategies have historically outperformed cash‑based approaches.
Investors who adopted this style early in the TFSA’s history see significantly larger balances today.
What the average Canadian’s TFSA looks like at 55
The most recent Canada Revenue Agency (CRA) data shows that TFSA balances rise steadily with age. Recent CRA filings also highlight how the median TFSA balance climbs steadily with age, underscoring how contribution habits shape long‑term outcomes.
Canadians in their mid‑50s are in their peak earning years and therefore typically hold among the highest median balances of any group.
For Canadians around age 55, TFSA balances tend to fall into a broad range. Investors who were able to maximize contributions since the inception of the TFSA have $117,000 in contribution room.
That being said, the average Canadian’s TFSA balance at the age of 55 stands just over $33,000. That’s a massive gap of unused room. Consistent annual contributions, even in small amounts, tend to produce far stronger TFSA outcomes by the mid‑50s.
Fortunately, TFSA holders still have a decade of deposits to look forward to. And by picking the right investments in your TFSA, such as the Vanguard 500, there are plenty of opportunities to narrow that gap.
