Planning for retirement in Canada often involves tax-efficient strategies, and the Tax-Free Savings Account (TFSA) stands out because all capital gains and withdrawals are completely tax-free. The key question for many investors is: how much do you need in your TFSA to retire comfortably? Your answer depends on your target annual income in retirement, the yield you expect from your portfolio, and how long you’ll want your savings to last.

A straightforward way to estimate this is by setting your desired annual retirement income target and then working backwards based on a reasonable safe-withdrawal rate. For example, if you want $40,000 per year from your investments, and you base your planning on a 4 percent withdrawal rate, you’d need roughly $1 million in TFSA savings by the time you retire. At a 4 percent rate, $1 million would generate about $40,000 annually without dipping into your principal — and all of that income would be tax-free.

If your retirement income target is lower, your TFSA goal drops proportionally. For instance, a $30,000 annual target would require about $750,000 at the same withdrawal rate. Conversely, if you’re aiming for $50,000, you’d need about $1.25 million invested. These figures assume you can build a diversified portfolio that earns consistent returns over decades and that you manage risk effectively along the way.

Dividend-paying stocks, real estate investment trusts (REITs), and other income-generating assets can help you achieve these goals by producing regular cash flow without forcing you to sell shares in down markets. Within a TFSA, all of that income compounds tax-free, which accelerates your long-term growth prospects compared to taxable accounts. Choosing assets with sustainable payouts and solid fundamentals is important to ensure your income holds up through market cycles.

Another consideration is your lifestyle and expenses. Health care, travel, housing, and other costs vary significantly by individual. A more conservative approach might use a 3.5 percent withdrawal rate instead of 4 percent — this means you’d need more savings to generate the same income but also increases the likelihood that your portfolio lasts throughout retirement.

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In practice, many retirees won’t fund 100 percent of their lifestyle from a TFSA alone. Registered Retirement Savings Plans (RRSPs), Canada Pension Plan (CPP) benefits, Old Age Security (OAS), and other income sources will likely supplement your TFSA withdrawals. Still, maximizing your TFSA early and consistently can reduce dependence on taxable income later in life.

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Ultimately, calculate your TFSA target based on your retirement income needs, a withdrawal rate you’re comfortable with, and a realistic return assumption for your investment mix. Regular contributions and disciplined investing help ensure that your TFSA becomes a meaningful source of tax-free retirement income.