The TFSA Balance You’ll Probably Need to Retire Well in Canada

How much money do you need to retire? The classic question every Canadian has. You can use the Motley Fool retirement calculator to make a personal retirement goal, as every person has different financial needs. On a more generic note, a million-dollar retirement is a dream figure. Looking at growing inflation, Canadians are aiming for a $1.7 million portfolio to retire, according to BMO’s Annual Retirement Survey.

Determining your TFSA balance for a financially healthy retirement

You can keep adding to the retirement pool, and this will only grow at an exorbitant level. However, don’t lose your sleep over such numbers, as you may not really need that much to retire. In fact, 36% of Canadians who aim for a $1.7 billion portfolio believe they may not achieve this goal. However, chasing stars can lead you to mountains.

Let’s take one step at a time and identify your retirement requirements. If you are in your 40s, assess your expenses and determine which will no longer be there when you turn 65. For instance, your mortgage would probably be over, childcare expenses will be gone, and your daily commute to work will be reduced. That would probably be replaced by healthcare and medical bills.

Suppose you earn $70,000–$90,000 annually, and you seek the same amount for your passive income to pay. The Canada Revenue Agency (CRA) will cover for $20,000 to $27,000 of the expense from the Canada Pension Plan (CPP) and Old Age Security (OAS) pension. These are the 2026 payout figures.

You want your Registered Retirement Savings Plan (RRSP) and Tax-Free Savings Account (TFSA) to cover the remaining $50,000–$60,000. Considering a 4% withdrawal rule, a $1.25 million to $1.5 million retirement pool can give you a $50,000 to $60,000 annual payout.

Can you achieve a $1.5 million retirement portfolio?

According to Statistics Canada, 45–54-year-old Canadians have an average TFSA balance of $40,500 and an average RRSP balance of $173,500. Assuming that 50% of this amount is dedicated to a retirement portfolio, $107,000 is a good start at age 45.

However, if you don’t have even $100,000 in retirement savings, it’s time to pull up your sleeves and focus all your savings on retirement. If you start with a $50,000 portfolio today and invest $12,000 annually in a portfolio with 12% compounded annual returns, you can achieve a $1.45 million portfolio 20 years from now.

Two decades from now, $50,000 may not be your requirement, but it can at least help you cope with daily expenses. Someone earning $70,000 annually could consider maxing out on the $7,000 TFSA contribution and investing the remaining $5,000 through an RRSP. If you only have $50,000 in retirement savings at age 45, consider investing 15–25% of your income in retirement instead of 10%.

TFSA stocks to accelerate your retirement pool

Another way to boost your savings is by investing in high-growth stocks through a TFSA and increasing portfolio returns. The iShares NASDAQ 100 Index ETF (CAD-Hedged) (TSX:XQQ) can help you earn up to 20% average annual returns in 10 years. The Nasdaq Index houses the most stocks in the artificial intelligence (AI) supply chain. So far, the AI infrastructure is enjoying the rally. In the future, AI applications will see growth and drive Nasdaq to new highs.

Royal Bank of Canada (TSX:RY) is another stock to buy and forget. Its wealth management and capital market division performs well in a growing economy. Its banking business performs well when interest rates rise. The stock has surged 120% in the last five years, beating its previous 134% rally between 2009 and 2019. This shows that the bank’s growth has accelerated, and it could accelerate further as Canada invests in energy and AI infrastructure.

While the above two stocks can help you beat 12% returns requirement, CT REIT (TSX:CRT.UN) can give you a 5.2% annual yield, 3% dividend growth, and a dividend reinvestment plan to compound the passive income. Some of the most obvious stocks give the best returns.