Time flies fast, and if you’re in the mid-50s, retirement is no longer someday but a looming reality. Anxiety about financial readiness is common and completely valid in this age group, but it doesn’t mean doomsday. Canadians can turn to the Tax-Free Savings Account (TFSA) and their available contribution rooms to improve their financial standing.
The TFSA is a powerful wealth-building tool, as a 10-year runway is sufficient to build a nest egg. Investments grow or compound faster because all interest, dividend income, and capital gains inside the account are tax-free.
Source: Getty Images
TFSA balance statistics
The most recent data based on the 2024 file released by the Canada Revenue Agency (CRA) revealed surprising figures. TFSA users can see and compare their personal utilization thus far. The national average balance is $38,566.
For account holders aged 50–59, the average dollar amount is $35,000 to $43,000. While this average is well below the $109,000 maximum cumulative lifetime contribution limit, the balance is 46% to 54% higher than the 40–49 age bracket. Assuming a $43,000 balance, a 55-year-old TFSA user can close the $66,000 gap within a 10-year timeline through the power of compounding.
Investment strategy
Dividend stocks are logical, practical investment options for TFSA users in catch-up mode. However, it doesn’t mean that you invest in any high-yield stock. Pick the big guns or blue-chip stocks that have endured the test of time, including market downturns. More importantly, you’d have pension-like income beyond the 10-year period.
When you start collecting the Canadian Pension Plan (CPP) and Old Age Security (OAS) at age 65, your TFSA is the third crucial pillar in retirement. The government pensions can cover your recurring financial needs, while TFSA income can fund your lifestyle, travel, and other expenses.
Highly logical dividend engine
Canadian Natural Resources Limited (TSX: CNQ), a big gun in the energy sector, fits perfectly into a 10-year catch-up strategy. A 55-year-old TFSA investor is assured of a reliable, pension-like income stream beginning in 2036. This large-cap stock trades at $55.95 per share and pays a lucrative 4.4% dividend.
For illustration purposes, a $66,000 position today will compound to $102,334 in 10 years, including dividend reinvestment but excluding future price appreciation and dividend increases. Performance-wise, CNQ’s total return in 10 years is plus-340.4%. Analysts’ 12-month average price target is $70.75 (+26% potential upside).
The $118.2 billion senior crude oil and natural gas producer boasts a large, diverse, balanced asset base. CNQ’s defensive structural strength and competitive moat come from its extensive infrastructure and operations. Its reserves are the second-largest among Canadian peers, with a 30-year reserve life. The low-to-mid-$40-per-barrel break-even supports long-term sustainability.
Furthermore, the 26-year dividend growth streak is a compelling reason to invest in CNQ and make it a dividend engine in a TFSA.
Start today
Canadians in their mid-50s have a wide-open opportunity to ensure financial stability in retirement. The 10-year countdown isn’t something to fear. By using TFSA contribution room and investing in an elite dividend grower like CNQ, building a tax-free, pension-like income stream can start today.
