Are you approaching 60 years old and wondering whether your tax-free savings account (TFSA) measures up?
It’s a natural question to ask as you approach retirement age.
TFSAs and registered retirement savings plans (RRSPs) are the main retirement vehicles available to Canadians. In recent years, the TFSA has been growing in popularity, making it a bigger part of the average Canadian’s retirement mix than it was in the past.
If you’re like most Canadians, you probably have a substantial percentage of your retirement money in a TFSA. The question is, do you have enough? In this article, I will explore the typical TFSA balance for Canadians approaching 60.
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About $26,800
According to Statistics Canada (StatCan), the average Canadian in the 55–59 age bracket had $26,800 in their TFSA in 2023. This is the most recent data StatCan has on file; it publishes statistics with a two year lag, and the 2026/2024 data hasn’t been reported yet. Given the two contribution years that have passed and the bullishness of the markets in that period, the average is probably higher than $26,800 now. We can’t say how much higher, though. So $26,800 is the best estimate we have to work with.
When I first saw StatCan’s estimate of the average 55–59 year old’s TFSA balance in 2023, I was a little surprised. With the TFSA having been invented in 2009, Canadians have had 17 years to make contributions. Contributing $10,000 per year, a Canadian who started in 2009 would have contributed $170,000 by 2026, and that would likely have grown given the market’s performance in the time period.
$26,800 certainly isn’t enough to retire on. However, if you have a few hundred thousand in an RRSP, a lifetime of CPP contributions behind you, and a house worth $500,000, you might have enough resources to retire on. With that in mind, here are some suggestions on how to invest in your TFSA.
Investing in a TFSA
The main advantage of the TFSA is that it shelters your investments from taxation, without a penalty on withdrawal. The lack of withdrawal penalty makes the TFSA suitable for investments you won’t necessarily hold for life. If you’re saving up to make a major purchase, the TFSA makes more sense than the RRSP.
With that being said, the basic idea of investing in index funds holds for both TFSAs and RRSPs. Index funds provide diversification at a low cost, which maximizes long term returns.
Take the iShares S&P/TSX 60 Index Fund (TSX:XIU), for example. It’s a Canadian fund that holds large cap Canadian stocks. It is built on the TSX 60, an index consisting of the 60 biggest publicly traded Canadian companies. The fund holds the majority of these 60 stocks, meaning that it tracks its index well. It also has a relatively low management fee of 0.15%, and a 0.18% management expense ratio (MER).
With a diversified portfolio of index ETFs, including XIU, you should watch your TFSA grow and compound over the long term. Eventually, you could grow your account to the point where it can cover all of your expenses in retirement.
