Freedom 55: How Do Your TFSA and RRSP Savings Stack Up?

Freedom 55 can work, but you’ll need a “bridge” portfolio to cover years before CPP and OAS start.

Amy Legate-Wolfe

Author Bio Amy became interested in investing in 2018 after having her first daughter. After receiving a masters degree in journalism from Western University, she became frustrated that the finance industry remained a confusing place for Canadians like her: new parents, millennials, and other young people who needed to understand their finances. Now, Amy focuses on tech companies and renewable energy for growth opportunities, coupling that with long-term investing strategies and equities. She also provides investors with a daily newsletter, Canada Stock Digest, for daily market updates. Her work can also be found at Canada's National Observer, where she writes on the business side of climate action. Before joining Motley Fool Canada, Amy wrote for major news organizations including HuffPost, CTVNews.ca, and CBC. When she’s not researching investing strategies, Amy’s time is pretty much monopolized by her two wild daughters, but in what little spare time she has she loves to do yoga, go on walks with her dog, and travel with her husband. Social Media Follow Amy on LinkedIn and Canada Stock Digest. Favorite Investment Quote “October: This is one of the particularly dangerous months to speculate in stocks. The others are July, January, September, April, November, May, March, June, December, August and February.” – Mark Twain

Published July 31, 4:00 pm EDT

Freedom 55 sounds like coffee by the lake at 10 a.m. The catch is that retiring at 55 creates an expensive gap before government benefits begin.

Piggy bank and Canadian coins — Source: Getty Images

The numbers

Canada Pension Plan (CPP) payments can’t begin until 60, and taking them then permanently reduces the monthly amount. Old Age Security (OAS) normally starts at 65. Someone leaving work at 55 may therefore need personal savings to fund at least five years without either benefit.

So, how large should those savings be? Statistics Canada’s latest figures provide a useful reality check, although these are reference points rather than retirement commandments carved into stone.

AGE GROUP	MEDIAN RRSP SAVINGS	AVERAGE TFSA BALANCE
Under 35	$15,000	$16,760 for ages 30–34
35–44	$33,000	$18,842–$20,670
45–54	$72,600	$24,150–$30,190
55–64	$120,000	$37,600–$45,109

The Registered Retirement Savings Plan (RRSP) figures are household medians, while the Tax-Free Savings Account (TFSA) numbers are individual averages among account holders, so shouldn’t simply be added together. Pensions, home equity, debt, retirement age, and expected spending can also make two identical balances produce wildly different retirements.

Use both

An RRSP provides a tax deduction today, while investments grow tax-deferred until withdrawal. Withdrawals become taxable income, making the account particularly attractive when contributions are deducted at a higher tax rate than the investor expects to pay during retirement.

The 2026 RRSP dollar maximum is $33,810, although personal room generally depends on previous income, pension adjustments, and unused room. The TFSA adds another $7,000 of annual room, with unused amounts carrying forward.

Growth and withdrawals inside a TFSA are generally tax-free, and withdrawals won’t increase taxable income or reduce federal income-tested benefits. Someone targeting Freedom 55 could use the TFSA for those early bridge years while allowing the RRSP to keep compounding.

Consistency can close a surprising amount of ground. Investing $1,000 monthly for 15 years would grow to approximately $317,000 at an average 7% annual return. Returns won’t arrive in a perfectly polite straight line, but regular contributions remove the need to predict every market wobble. So, where should investors make those contributions?

SLF

Sun Life Financial (TSX: SLF) could provide part of that long-term portfolio. Sun Life stock sells insurance, wealth-management, health-benefit, and retirement products across Canada, the United States, and Asia. It also manages approximately $1.58 trillion in assets.

First-quarter underlying earnings per share (EPS) increased 4% to $1.89, helped by growth in Asia, Canada, and the U.S. Health & Risk Solutions. Management increased the quarterly dividend from $0.92 to $0.96, giving the shares a yield near 3.3% at writing

The dividend consumes roughly 51% of annualized first-quarter underlying earnings, while Sun Life stock’s 143% capital ratio provides additional financial protection. Meanwhile, recent investments in BGO, Crescent Capital, and Bell Partners should expand the asset-management business and its fee income.

The shares trade around 21.5 times earnings at writing. That valuation appears reasonable, although it’s no yard-sale sticker after the stock’s strong run. Even so, this is what just that $7,000 contribution could earn.

COMPANY	RECENT PRICE	NUMBER OF SHARES	ANNUAL DIVIDEND	ANNUAL TOTAL PAYOUT	FREQUENCY	TOTAL INVESTMENT
SLF	$115.35	60	$3.84	$230.40	Quarterly	$6,921.00

Foolish takeaway

Sun Life stock remains exposed to financial-market declines, asset-management outflows, insurance claims, currencies, and acquisition execution. One stock also shouldn’t become an entire retirement portfolio, no matter how beautifully its dividend behaves.

Investors below the national benchmarks haven’t failed Freedom 55, while those above them haven’t automatically secured it. A realistic spending target, steady TFSA and RRSP contributions, and years of compounding can still turn today’s balance into tomorrow’s gloriously empty calendar.