Canadians: Here’s how much you need in your TFSA to retire

If you want to retire on time, you should put part of your investments in a Tax-Free Savings Account (TFSA). By letting you hold and withdraw investments tax-free, TFSAs offer you significant savings opportunities. If you earn $50,000 in Registered Retirement Saving Plan (RRSP) income and have a 50% marginal tax rate, the income is halved upon withdrawal. The exact same income withdrawn from a TFSA is not taxed at all! So it’s clear that all Canadians should invest in a TFSA. In this article, I will address the question of how much money you need in your TFSA to retire comfortably.

There is no one-size-fits-all solution

It is immediately important to note that this is not the case An answer to the question of how much a Canadian needs in a TFSA to retire. It depends on the cost of living, tax rates and dependents. However, it is possible to develop profiles of some typical Canadians and estimate how much TFSA income they will need to retire. In the following paragraphs I will make such estimates for two fictional Canadians: Harry and Sally.

Harry: The married high earner

Harry is a high earner who mainly invests in dividend stocks Fortis (TSX:FTS) and exchange traded funds (ETFs). Because he invests all his money in RRSPs and TFSAs, Harry doesn’t have to worry about investment taxes.

Harry rents an apartment in Toronto for $5,000 a month. He and his wife make a combined $500,000 a year ($250,000 after taxes). They have three children, for whom they spend $2,000 per month (so $6,000 in total). Their food, cell, internet and utility bills amount to $1,500 per month. They also spend about $10,000 a year on travel and entertainment. These costs amount to $160,000 per year. If Harry wants to continue such spending after retirement, he will need $4.485 million in his TFSA. This amount cannot be contributed to a TFSA without prior gains, but Harry has made large investment gains in the past. Here’s the calculation that shows why he needs $4.485 million in TFSA investments to retire.

COMPANY	RECENT PRICE	NUMBER OF SHARES	DIVIDEND	TOTAL PAYOUT	FREQUENCY
Fortis	$71.79	62,481	$0.64 per quarter ($2.56 per year)	$39,988 per quarter ($159,951 per year)	Quarterly

Sally: The single retiree

Sally is a single retiree living in Newfoundland. She spends $1,500 a month on rent, utilities, cell phone and internet combined. She has no family members. Her groceries cost her $450 a month. In addition, she takes one $5,000 vacation a year and spends another $5,000 on various entertainment activities. These amounts together amount to $38,400; So, based on the previous table, if Sally invests in Fortis stock, she will need $1.076 million in her TFSA to retire, based on investment income alone.

Takeaways

From the two fictional but realistic Canadians we profiled, we can draw some conclusions about how many You would need in a TFSA to retire:

1. The amount of investments you’ll need for retirement is significant, even with the TFSA’s famed tax efficiency.
2. The amount is also well above the maximum cumulative contribution space for 2026 ($109,000).
3. Most Canadians need a mix of TFSAs, RRSPs, Canada Pension Plan and Old Age Security to retire.

Simply put, you’re not likely to be able to retire on a TFSA alone in 2026. The only way this could happen is if you realized huge, market-beating profits. However, a new TFSA room is added every year. With time, diligent saving, and smart investing, you could make it work.