Canadians: Here’s How Much You Need in Your TFSA to Retire

Most Canadians need roughly $1 million in their TFSA to retire comfortably. Here’s the math and one ETF that can help you get there.

Key Points
  • A BMO survey found Canadians now believe they need about $1.7 million to retire comfortably, but your Tax-Free Savings Account (TFSA) does not have to carry that load alone.
  • Using the 4% withdrawal rule, you likely need between $600,000 and $1 million invested in your TFSA to generate a meaningful, tax-free income stream in retirement.
  • The Vanguard FTSE Canadian High Dividend Yield Index ETF is one of the best tools to build that nest egg, combining low fees, monthly distributions, and a proven track record.

If you want tax-free retirement income of roughly $40,000 a year, you need close to $1 million sitting in your TFSA (Tax-Free Savings Account). A low-cost way to generate passive income is by investing in high-dividend-paying exchange-traded funds. One top dividend exchange-traded fund (ETF) is Vanguard FTSE Canadian High Dividend Yield Index ETF (TSX: VDY), which offers a yield of 3.3% in May 2026.

Retirement planning can feel vague until you attach a real dollar figure to it. It also forces you to be honest about the trade-offs, such as spending a little less now, working a couple extra years, or taking on a bit more market risk than feels comfortable.

The TFSA is one of the most powerful tools in a Canadian investor’s toolkit, and most people are not using it to its full potential.

senior couple looks at investing statements

Source: Getty Images

The math behind your TFSA retirement number

Start with the income gap. So, figure out the annual after-tax income you want in retirement, then subtract what you expect from the Canada Pension Plan (CPP), Old Age Security (OAS), workplace pensions, and any other income sources. Whatever is left over is what your TFSA needs to cover each year.

Then convert the annual income gap into a portfolio size using the 4% withdrawal rule. Here, you need to divide your yearly TFSA income target by 0.04.

If you want $24,000 in tax-free income each year, your TFSA balance should be around $600,000. If your annual income requirement increases to $36,000, the TFSA balance for retirees will rise to $900,000.

Notably, the amount withdrawn from the TFSA is tax-free and does not impact your OAS or Guaranteed Income Supplement (GIS) eligibility.

According to a recent BMO survey, Canadians now estimate they need about $1.7 million to retire comfortably. Your TFSA probably won’t cover all of that on its own, but it can do a lot of heavy lifting, especially when you pair it with CPP, OAS, and any other savings you have.

Why the VDY ETF belongs in your TFSA

The VDY ETF tracks the FTSE Canada High Dividend Yield Index, a market-cap-weighted index built around Canadian companies that pay above-average dividends.

The ETF holds 61 stocks across the financials, energy, utilities, and telecom sectors. Its top 10 holdings, including Royal Bank of Canada, Toronto-Dominion Bank, Enbridge, and Canadian Natural Resources, make up about 67% of the fund. These companies are among the most established dividend payers in the country.

VDY’s management expense ratio is just 0.22%, which means more of your money stays invested and compounding over time.

VDY delivered a one-year net asset value return of 41.16%, a three-year annualized return of 22.79%, and a five-year annualized return of 17.39% as at March 31, 2026.

Since its inception in November 2012, the fund has returned 12% annually. Year-end calendar returns from 2021 to 2025 show a 36.73% gain, a near-flat 2022, an 8.36% gain in 2023, a 21.40% gain in 2024, and a 30.92% gain in 2025.

Distributions are paid monthly, which is ideal for income-seeking retirees. VDY also closely mirrors its benchmark, with a tracking error of just 0.08% and a beta of 1.00.

The Foolish takeaway

The 2026 TFSA contribution limit is $7,000. If you have been eligible since 2009 and never contributed, you now have up to $109,000 in total contribution room available (with the updated cumulative limit as of 2026). And if you invest it wisely in something like VDY, compounding will do the heavy lifting over time.

Experts often suggest aiming for retirement income equal to about 70% of your pre-retirement earnings. On a $100,000 salary, that is $70,000 a year.

With a 30-year retirement and 5% annual returns, you’d need to accumulate roughly $1 million to sustain that lifestyle comfortably.

Someone with a simpler lifestyle and a full CPP payment might need far less. A big spender with no pension might need more. But the framework is the same for all of us: know your income gap, pick a withdrawal rate, and build toward a number you can revisit each year.

The TFSA is built perfectly for that job. And VDY is one of the best ways to put it to work.

Fool contributor Aditya Raghunath has no position in any of the stocks mentioned. The Motley Fool recommends Canadian Natural Resources and Enbridge. The Motley Fool has a disclosure policy.

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