Turning 55 changes how most of us think about money. Retirement stops being a distant idea and starts feeling close enough to plan around.
The shift is why so many investors at this age start asking a simple question: how does my Tax-Free Savings Account (TFSA) compare with everyone else’s?
The Canada Revenue Agency has an answer, and it tells a story with two very different sides.
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The average TFSA balance at 55 is lower than you might expect
According to the latest CRA statistics, Canadians aged 55 to 59 have an average TFSA balance of $43,519.
However, anyone who was over the age of 18 since the TFSA launched in 2009 now has $109,000 of lifetime contribution room. It means the average 55-year-old has used only about 40% of the available tax-free space.
The best TFSA investors are those who have turned the available $109,000 contribution room into $500,000 or more. A proven strategy to build long-term wealth is to own quality growth stocks in the TFSA and let the power of compounding do its work.
Several Canadians also use the TFSA as an emergency fund. As withdrawals are tax-free and flexible, it is tempting to dip into the account for a mortgage down payment, a child’s education, or an unexpected bill. Every dollar withdrawn is a dollar that stops compounding, even though the room is added back the following year.
If your balance is close to that $43,000 average, there is still time to change the outcome. A 55-year-old typically has around 10 years before the traditional retirement age of 65, and every dollar of unused contribution room carries forward indefinitely.
One top TSX stock you can own in the registered account is Canadian Pacific Kansas City (TSX: CP).
Why I like Canadian Pacific Kansas City for a TFSA
CPKC runs the only single-line rail network connecting Canada, the United States, and Mexico, a structure the company built through its 2023 combination of Canadian Pacific and Kansas City Southern.
Management has repeatedly cited its network as the reason the business continues to grow, even as industry-wide freight demand has been soft.
At a recent industry conference, Chief Marketing Officer John Brooks said the company is targeting mid-single-digit volume growth and double-digit earnings-per-share growth for the year, and added that pricing discipline across the network remains intact.
Chief Operating Officer Mark Redd described a railroad running efficiently, with double-digit improvements in metrics such as dwell time and car velocity compared with the prior year.
CEO Keith Creel has also pointed to the company’s newer Mexico-focused rail service, called SMX, as a key growth driver, noting strong customer demand for train service that competes directly with trucking on transit time.
He has also highlighted $1.4 billion to $1.5 billion in expected synergies from the merger, ahead of the original schedule laid out at the company’s investor day.
CPKC bought back 4% of its stock last year, announced a new buyback program this year, and has raised its dividend in each of the past two years, according to Chief Financial Officer Chris de Bruyn.
A business with a growing dividend, an active buyback, and a network that management says is still in the early innings in Mexico is the type of holding that rewards patience in a TFSA.
Held inside the account, every dividend and every dollar of share price growth stays completely tax-free.
