How Much Should Canadians Actually Have in a TFSA Before They Retire?

Vanguard FTSE Canadian High Dividend Yield Index ETF (TSX:VDY) could be a great go-to holding to stash in a TFSA for the next 20 years.

Key Points
  • There’s no single TFSA dollar amount that guarantees you can retire, because it depends on your full income picture (RRSP, pensions, taxable savings, spending level, and withdrawal rate).
  • The best target is to contribute up to your lifetime TFSA limit and invest it for long-term growth, with an option like VDY as a simple way to get dividends plus potential upside instead of leaving cash in a savings account.

For those looking for a single ballpark figure as to how much one should have in their Tax-Free Savings Account (TFSA) before they have the green light to retire and finally hang up their skates from the labour force, there really isn’t one, as the figure depends on a whole range of variables that go above and beyond the TFSA.

Indeed, the TFSA is an invaluable account that can help comprise a sizeable nest egg, but it’s not the only one. When we consider the RRSP, which many older investors tend to prioritize, as well as non-registered accounts and the potential workplace pensions and other sources of passive income one may have (think part-time work in a semi-retirement of sorts), only then can we have enough information to get a clearer picture of what one needs to retire and how the TFSA fits in.

And, remember, if you outspend the amount of passive income flowing in or withdraw too much from your investment accounts, you could be put in a more difficult spot than someone who’s frugal and chooses to reinvest any of the extra cash flow that comes in during retirement.

Silver coins fall into a piggy bank.

Source: Getty Images

What should all Canadian investors target with their TFSAs, though?

My answer is that one should get their TFSA nest egg as close as one can to one’s lifetime maximum allowable amount. So, if you were of age when the TFSA came to be, that means your TFSA should be in the six figures by now.

And if you invested the proceeds, maybe it’s running well ahead of what you initially contributed. In any case, the answer is pretty simple: do your best, make the contributions, don’t overcontribute (there are still penalties for doing so), and invest, as “saving” your way to a nest egg is becoming more of an uphill battle considering where inflation is at.

Instead of “saving” your way to retirement, think about investing your way there, and invest wisely in stocks that are undervalued relative to your expectation of their true worth, rather than trading or chasing what’s hot. Trading is too tough a game with stakes that are way too high, especially when it comes to a TFSA. Long-term investing, however, is the wise way to go, especially if you don’t expect to retire anytime in the next decade.

Vanguard FTSE Canadian High Dividend Yield Index ETF

So, in short, there’s no single figure to shoot for with the TFSA, and I won’t throw a ballpark number in this piece. Instead, I’ll focus on a stellar exchange-traded fund (ETF) in Vanguard FTSE Canadian High Dividend Yield Index ETF (TSX: VDY), which I think is a far better bet than even the highest-interest savings accounts out there.

So, unless you have plans for the TFSA cash in the near future, the VDY stands out as a far better place to invest to get ahead, especially as inflation sticks around and the Bank of Canada continues holding off on rate hikes.

The VDY isn’t just a boring, low-tech index, though; it has a nice 3.1% dividend yield alongside serious upside momentum, now up 45% in a year and 73% in two years. And with that, the VDY is a terrific ETF that delivers more than just dividends and dividend growth. The management expense ratio, just north of 0.2%, is decent, but I wish it were slashed in half to be more competitive with other lower-cost dividend ETFs on the TSX Index.

Fool contributor Joey Frenette has positions in Vanguard Ftse Canadian High Dividend Yield Index ETF. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

More on Retirement

A meter measures energy use.
Energy Stocks

Canadian Utilities vs. Hydro One: Which Dividend Stock Would I Hold for 15 Years?

A proposed merger changes the Canadian Utilities comparison, while Hydro One still requires price discipline.

Read more »

pig shows concept of sustainable investing
Stocks for Beginners

How I’d Turn Quarterly Bank Dividends Into a Monthly Paycheque

Quarterly bank dividends can fund regular monthly transfers without choosing stocks for payment dates.

Read more »

man calculates finances
Dividend Stocks

How to Structure a $50,000 TFSA for Consistent Monthly Income

Structure a $50,000 TFSA for consistent monthly income with Scotiabank, RioCan and ZWC. Explore an allocation targeting about $200 a…

Read more »

House models and one with REIT real estate investment trust.
Dividend Stocks

Canadian Apartment Properties vs. Killam: Which Rental Stock Would I Buy?

CAPREIT gets a narrow preference on starting income and valuation, with Killam offering a different regional mix.

Read more »

woman stares at chocolate layer cake
Dividend Stocks

Starting With $10,000 at 40: How I’d Build Future Retirement Income

A $10,000 start becomes more powerful when monthly contributions join reinvested returns.

Read more »

dividend stocks are a good way to earn passive income
Energy Stocks

Freehold Royalties vs. Whitecap: Which Energy Stock Fits an Income Portfolio?

Freehold supplies more starting income, while Whitecap offers a different route through production growth.

Read more »

woman relaxes with phone
Dividend Stocks

BCE Cut its Dividend: Has the Stock Become a Better Income Investment?

BCE’s new payment offers income, but cash after spending still has to support the recovery.

Read more »

woman looks at iPhone
Dividend Stocks

Want an Average of $100 a Month From Sun Life? Here’s How Many Shares You’d Need

Sun Life’s new dividend turns a $100 monthly-average goal into a clear 300-share purchase.

Read more »