Is a 20-to-25-year lead time sufficient to build wealth and ensure financial security in retirement?
Canadians in their 40s have an advantage in achieving the objective through the Tax-Free Savings Account (TFSA) and Registered Retirement Savings Plan (RRSP). The typical TFSA and RRSP for this age group are way below the ideal, says the Canada Revenue Agency (CRA).
Fortunately, it is not a dead end but instead a wide-open opportunity to make hay while the sun shines. Most in their 40s are entering their peak earnings years. They are well-positioned to maximize contributions to either investment account or to both, depending on their investment strategies.
man withdraws money from ATM
TSFA and RRSP balances at 40
Canadians in the 40–49 age group have an average TFSA balance of $24,000 to $28,000. Compared with the $109,000 maximum lifetime contribution room, the adoption rate is between 22% and 26%. The gap is substantial, but when the tax-free space is tapped, the balance could accelerate quickly.
Data from the 2024 contribution year shows an upward trend as Canadians age. The typical balance jumps to a high of $43,000 in the 50–59 age band, then to $52,381 in the 60–64 bracket. The figure further improves every 5 years among older generations.
As with the TFSA, RRSP balances vary by age, although the median is more realistic than the average. The median RRSP balances at 35–44 and 45–54 are $30,000 and $70,000, respectively. However, according to financial experts, the benchmark by age 40 is 3 times your annual salary.
Close the gap
While the savings gap is significant for both investment accounts, the runway to close it is long. The recommended strategy is to use your TFSA when the marginal tax rate is low and prioritize your RRSP when taxes are high in a contribution year. Your overall retirement funding should be higher at 65 to include the Canada Pension Plan (CPP) and Old Age Security (OAS) pensions.
Investment growth, not additional contributions alone, will boost TSFA and RRSP balances. The former is a tax-advantaged account, while the latter is tax-sheltered. All interest, capital gains, and dividend income are 100% tax-free in a TFSA, including withdrawals. On the other hand, you pay taxes on RRSP withdrawals.
Suitable anchor
Qualified investments are the same for the TFSA and RRSP. However, stocks are preferred assets to drive compound growth. Canadian Imperial Bank of Commerce (TSX: CM), Canada’s fifth-largest lender, is a suitable anchor in both investment accounts. This $155 billion bank has an impressive 158-year dividend track record.
CIBC pays an ultra-safe 2.5% dividend (40.5% payout ratio). If you invest today, the share price is $169.94, up nearly 39% year to date. A $50,000 position today will compound to $93,695.20 in 25 years, including reinvestment of quarterly dividends. Assuming the yield remains constant, you’d receive a quarterly payout of $590.28 beginning in 2052.
In the first half of fiscal 2026 (six months ending April 30, 2026), net income increased 17.5% year-over-year to $5.5 billion. Notably, all business units delivered robust results in Q2 fiscal 2026. The reported Return on Equity (ROE) rose sharply to 16.4% versus 13.8% in Q2 fiscal 2025.
Self-funded retirement
Canadians at 40 can close the TFSA and RRSP savings gap with a dividend stock portfolio using CIBC as the anchor stock. The result after the wealth-building phase is a self-funded retirement.
