The TFSA Balance You’ll Probably Need to Retire in Canada

Financial capacity is the primary consideration of most Canadians before leaving the workforce for good. The most recent BMO Annual Retirement Survey suggests that Canadians think they would need an average of $1.7 million to retire comfortably.  

Government programs such as the Canada Pension Plan (CPP) and Old Age Security (OAS) are foundations and partial replacements for working income. Personal investments are the recourse to fill the income shortfall.

The Tax-Free Savings Account (TFSA) has become one of the top retirement vehicles in Canada, even surpassing the Registered Retirement Savings Plan (RRSP) in popularity. Using the TFSA is simple, requiring only regular contributions. You then invest in income-producing assets, preferably dividend and growth stocks, to generate higher returns.

Push the numbers

The $1.7 million hurdle appears outrageous, considering the modest annual TFSA contribution limit of $7,000 in 2026. However, according to the Canada Revenue Agency (CRA), the average TFSA balance based on the 2024 contribution year is only $38,566.

With the lifetime cumulative limit for those eligible since 2009 now at $109,000, the tax-free compounding opportunity is massive. A methodical approach and the power of compounding will make it possible to reach the retirement threshold. All interest, capital gains, and dividend income inside your TFSA is tax-free.

Proper perspective

The $1.7 million TFSA nest egg is an ideal total, though the adequacy of a retirement fund depends largely on lifestyle. For Canadians taking the retirement exit at 65, an actionable retirement target is a $60,000 annual budget ($5,000 per month), to include the CPP and OAS.

For 2026, the average monthly CPP payout and maximum OAS benefit are $877.01 and $751.97, respectively. If you subtract their combined annual total of $19,547.46, personal investments are left to cover the balance of $40,452.24.

Maximized TFSA

If finances allow, maximize your available contribution room to fully optimize your investment portfolio. Your stock holdings will serve as wealth-generating machines to bridge that gap.

The Royal Bank of Canada (TSX:RY) is the logical anchor for TFSA investors seeking dividend safety. Canada’s largest lender has consistently paid quarterly dividends since 1870. RY currently trades at $297.86 per share and pays a 2.4% dividend. Assume a $109,000 baseline, adding $7,000 annually.

Given the Big Bank’s long-term annualized total return of 9% to 11%, including dividends, it would take 26 years, more or less, to generate $40,523 in income per year. Total TFSA contribution is around $291,000, aided by compounding.

One option to shorten the timeframe is to allocate 30% of the baseline to MDA Space (TSX:MDA). At $44.68 per share, this high-growth stock has delivered a three-year total return of plus-460.6%. Had you invested $32,700 three years ago, this TFSA contribution would be worth $183,316.84 today.

The $6.7 billion company provides space technology solutions, including autonomous robotics systems, to the rapidly growing space economy. MDA Space is also entrenched in government-backed space infrastructure and has a pipeline of multi-year contracts.

Lifetime account  

Financial anxiety is common among Canadians when retirement is on the horizon, and the $1.7 million threshold only adds to the pressure. Fortunately, the TFSA has no age limit. You can contribute, invest, and generate tax-free income into the sunset years. However, the best way to get ahead is to activate this wealth-building engine as early as possible.

The post The TFSA Balance You’ll Probably Need to Retire in Canada appeared first on The Motley Fool Canada.

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More reading

• Beyond the GST Credit: Canadians Can Get These CRA Cash Benefits in July
• The Typical TFSA Balance for Canadians Approaching 60
• 3 Growth Stocks Worth Adding to a TFSA This Summer
• The Bank of Canada Just Spoke: 2 Canadian Stocks I’d Buy Before Rates Fall Further
• Bank of Nova Scotia Stock: Could This Be the Next Banking Winner?

Fool contributor Christopher Liew has no position in any of the stocks mentioned. The Motley Fool recommends MDA Space. The Motley Fool has a disclosure policy.