Given that the TFSA (Tax-Free Savings Account) preserves all your income and gains from tax, it is a crucial instrument for building retirement wealth. As Canadians enter their 50s, retirement starts to hit their radar. Many people start shifting their focus from wealth creation to wealth preservation and income.
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The average Canadian at 50 years old has $30,190 saved in their TFSA
The average Canadian between the ages of 50 to 54 has a TFSA portfolio value of $30,190. Certainly, that is no small sum. However, Canadians at that age who have been residents of Canada since 2009 should have $109,000 of accumulated TFSA contribution space. It simply means that many Canadians are not maximizing the full benefit of the TFSA.
The great news is that it is never too late to start saving and investing in your TFSA. Most Canadians plan to retire around 65. That gives you a good 15 years to keep contributing, investing, and growing your TFSA portfolio.
How to grow your TFSA over time
Say your TFSA portfolio balance is $30,190 today. If you were to contribute $500 per month and invest in a market index (at a modest 7% annual total return) for the next 15 years, your TFSA portfolio value could be as much as $234,069 by 65.
At retirement, you could convert that portfolio to a lower-risk, income-focused portfolio. If you earned a modest 3% average dividend yield, you could earn as much as $585 of monthly dividend income (or $7,022 annually) for retirement.
All this to say that even at the age of 50, you still have incredible optionality for creating retirement wealth. Simply using your TFSA will save you a tonne of tax dollars and enable you to compound your retirement wealth much faster.
A solid stock to hold into retirement
If I were in my 50s, I would be looking for a nice mix of value, growth, and income. Chartwell Retirement Residences (TSX:CSH.UN) is an interesting TFSA stock to play on the retirement theme. If you are thinking about retirement, why not invest in a company that will benefit from a massive retirement tailwind?
Chartwell is the largest provider of retirement communities in Canada. It has a portfolio that spans across the country. Its scale gives it brand strength, reputation, and operational leverage across its portfolio.
A massive wave of Baby Boomers is set to retire. They will require a mix of care, community, and downsized living space. These are all things that Chartwell can provide.
Unfortunately, the supply of retirement communities is not keeping up with demand. Chartwell already has over 95% occupancy. New retirement communities cannot be built fast enough to match the demand. That will put upward pressure on Chartwell rents and overall returns.
Chartwell is not the cheapest real estate investment trust (REIT). However, it does trade at a significant discount to other retirement community peers in the United States. Over time, as it continues to prove the quality of its platform, it could enjoy a stock re-rating.
Chartwell yields 2.7% today. It has a history of increasing its dividend, so you might see your income stream rise over time. This is just one of many stocks that you could buy and hold for long-term retirement returns inside a TFSA.
