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

How much do Canadians need in a TFSA to retire? Here are two picks that can help build long-term tax-free wealth.

Key Points
  • A realistic TFSA target for retirement varies by individual, but $250,000 serves as a solid benchmark when combined with other income sources like RRSPs and pensions.
  • Investing in growth opportunities like the Vanguard S&P 500 Index ETF offers diversification and significant long-term compounding potential.
  • Adding blue-chip stocks such as Canadian National Railway provides a stable, defensive option with consistent dividend growth for a robust TFSA retirement portfolio.

Canadian investors often question how much they will need in their TFSA to retire. Answering that question can be tough. Retirement planning becomes an impossible task when confronted with a massive number. It’s also a number that’s different for each person.

More is always better. A TFSA with $50,000 certainly helps, and a balance of $150,000 provides even greater options. For most investors, using a TFSA to retire with $250,000 is a great benchmark.

That’s especially true when combined with other accounts such as RRSPs, pensions, CPP and OAS benefits and even a paid-off home.

The balance needed in a TFSA to retire depends on a slew of different factors. Someone with a workplace pension, no mortgage and modest spending may not need a massive TFSA.

To meet those income needs, investors should hold the right assets that can provide growth over longer periods of time. This allows compounding to do the heavy work.

And perhaps best of all, within a TFSA, the investments to retire on compound tax-free.

Here are two of those investments to consider adding to your TFSA today.

person stacking rocks by the lake

Source: Getty Images

Invest in broad, long-term growth

The first option for investors looking at their TFSA as the engine to retire on is the Vanguard S&P 500 Index ETF (TSX: VFV). This ETF tracks the performance of the S&P 500 Index, which allows Canadians to gain exposure to the largest companies in the U.S.

This makes the fund appealing to investors seeking long-term growth. More importantly, it provides investors with instant diversification across major sectors of the U.S. economy. That includes consumer businesses, financials, healthcare, and even high-growth tech stocks.

The appeal of the Vanguard S&P 500 is the basket itself. Investors don’t need to pick individual holdings but just let compounding do the work.

This makes the fund better suited for long-term investors using their TFSA to retire.

Consider a blue-chip foundation

Another option for investors looking to build their TFSA to retire on is Canadian National Railway (TSX: CNR). Canadian National is one of the largest railways in North America, connecting three coastlines on the continent.

The railway hauls everything from automotive components and raw materials to crude oil, essential products, wheat and precious metals across its vast network.

In terms of volume, Canadian National transports over $250 billion worth of goods across its network each year. This makes it one of the most defensive options to consider within a TFSA retirement portfolio.

As an income stock, Canadian National doesn’t offer investors the highest yield. As of the time of writing, the railway only offers a yield of 2.1%, but the real appeal of Canadian National is its compounding potential.

The railway has provided investors with generous annual upticks to that dividend for three consecutive decades. This handily positions the railway as a strong option for any long-term TFSA portfolio.

Using a TFSA to retire is possible

Investors don’t need to hit a perfect TFSA number to retire. What is needed is a realistic target and the right investments. That’s where the Vanguard S&P 500 and Canadian National can provide the growth and long-term compounding to hit that TFSA retirement goal.

In my opinion, one or both should be in any long-term, well-diversified TFSA portfolio.

Buy them, hold them, and let compounding do the heavy lifting.

Fool contributor Demetris Afxentiou has positions in Canadian National Railway. The Motley Fool recommends Canadian National Railway. The Motley Fool has a disclosure policy.

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