It’s the million-dollar question that isn’t quite $1 million: how much do you need in your Tax-Free Savings Account (TFSA) portfolio to actually feel comfortable and, more importantly, confident enough to call it quits from work and retire? Sorry to disappoint, but nobody can answer this question but you and maybe your financial adviser, who has the full picture of your current finances.
Could you have a $500,000 TFSA and retire with $800,000 elsewhere (think a Registered Retirement Savings Plan and a non-registered account) and other sources of passive income (investments and maybe even a pension alongside the Canada Pension Plan and more)?
Sure, it’s possible. At the same time, you could also retire with a less swollen TFSA as long as the rest of the accounts are at an amount such that they can support you once you’re no longer bringing in a biweekly paycheque.
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Getting on the TFSA growth track doesn’t have to be hard
A TFSA is a fantastic tool to help you achieve a comfortable retirement as you compound your wealth in great stocks on a tax-free basis. Most definitely. But is it the only account that you should invest with? If you’re serious about retirement in the nearer term, probably not.
In numerous prior pieces, I’ve encouraged investors to consider the big picture, rather than narrowing in on one single account. Depending on your non-TFSA holdings, the answer to how much you need in a TFSA can range from zero to somewhere in the six figures.
In my humble opinion, it’s more about what your TFSA is investing in than anything else. Because at the end of the day, your TFSA is a lane towards retirement, the fastest lane at the very left. And while you could get to your destination by going into the middle or slowest rightmost lane, I think that staying on top of your TFSA and actually investing the proceeds in stocks, rather than holding cash, is the way to go.
Investing in a TFSA is always smart
You don’t need to be a genius stock picker to do extraordinarily well over time. With something as simple as Vanguard FTSE Canada Index ETF (TSX: VCE) and Vanguard S&P 500 ETF (TSX: VFV), you’ve pretty much covered most of your bases. In my humble opinion, the latter index deserves a heavier weighting, given the tech exposure, though the domestic market is full of value and more generous dividend payers (thanks to the financial and energy exposure).
It all comes down to whether you want value and a bit of an income jolt or more focus on mega-cap tech, which completely dominates the weighting of the S&P 500 nowadays. That’s a concern for some, a good thing for others. I’m in the latter camp since the earnings power of much of mega-cap tech is tough to top amid this AI boom.
With a name like Enbridge to help average up that yield, or a tech gem like Shopify for a shot at AI-driven capital gains, your TFSA can be as bountiful or growthy as you’d like. The key is diversifying, having a core foundation, and, most importantly, having the time horizon and mindset to stay the course, even when tough times come rolling through the stock market.
So, how much do you need in a TFSA? It depends. Should you invest in it to help increase the size of your overall nest egg? Most definitely. Any way you look at it, “comfortable” looks different for everybody. And, with that, so too will the size of one’s nest egg, TFSA or not.
