Many Canadians wonder how big their Tax-Free Savings Account (TFSA) needs to be to help fund a comfortable retirement. Because a TFSA grows tax-free — meaning you never pay tax on withdrawals or on investment gains — it can play a powerful role in your long-term financial plan, especially when combined with other accounts like an RRSP or non-registered investments.
Financial planners generally recommend targeting a TFSA balance that can meaningfully contribute to your retirement income goals, which depends on several personal factors: your desired lifestyle, other sources of retirement income (like government pensions or workplace plans), and how much you can save each year. For many people, having a six-figure TFSA balance by retirement age is a common benchmark, but this isn’t a one-size-fits-all number — it’s shaped by individual goals.
A good way to think about it is in terms of replacement income: how much you’ll need each year to maintain your lifestyle once you stop working. If you expect to spend, say, $60,000 per year in retirement and receive $30,000 from public pensions, you might aim to generate the remaining $30,000 from your investments. If your TFSA (and other savings) can generate that amount sustainably — for example, through a mix of dividends, interest and withdrawals — it can be a meaningful piece of your overall retirement income.
Because TFSA withdrawals are tax-free, the account can be especially useful for bridging gaps between other income sources and your spending needs. For example, if you want to delay taking government pensions or RRSP withdrawals to take advantage of lower tax rates later, you can use TFSA withdrawals in the meantime without increasing your taxable income.
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Building a large TFSA balance takes time and consistent contributions, so starting early and contributing as much as possible each year helps. If you still have room and you’re under age 71, maximizing annual TFSA contributions — especially if you invest in growth-oriented assets — can significantly increase the amount you have available when you retire.
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Ultimately, the “right” TFSA balance for retirement isn’t universal — it’s personal. It should be based on your spending goals, income needs, risk tolerance and other financial resources. A financial advisor can help you set a target that fits your situation; but in general, aiming for a robust TFSA balance alongside other retirement savings can give you flexibility, tax-free income and peace of mind in your later years.
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