With a long-term focus and some discipline, you could build a $1 million nest egg by the time you retire.
The key to making your millions is to invest early, make the maximum contribution to your Tax-Free Savings Account (TFSA) consistently each year, and select investments with sufficient growth potential over the long-term.
If you’re in your 20’s, you have time on your side and are well-positioned to make (or exceed) a million dollars of tax- free savings by retirement. If you’re getting a late start with investing, don’t worry. Individuals in their 30’s, 40’s and 50’s can still accumulate significant tax-free savings by the time they’re ready to retire.
The chart below illustrates the potential value of a TFSA at age 65, provided you deposit the maximum contribution amount each year, never make a withdrawal, and start your annual contributions at the age set out in the chart.
The chart assumes a 5.5% rate of return on an annual basis. The maximum TFSA contribution amount is indexed to a 2% inflation rate and rounded to the nearest $500.
When you invest in a TFSA, you will never be taxed on the growth you earn or on withdrawal. Canadians who are at least 18 years old earn a new contribution room every year, and that contribution room is cumulative. That means you can make extra deposits if you haven’t contributed the maximum amount in previous years. If you do make a withdrawal, your contribution room is regained the following year. This makes a TFSA one of the most flexible savings vehicles available.
Many Canadians underestimate the earning potential of a TFSA and use it for modest short-term savings goals. Often people are unaware of the variety of investment options and are surprised to find that a TFSA can be much more than just a low-interest savings account. TFSAs can hold term investments, segregated funds, mutual funds and individual securities such as stocks and bonds.
A TFSA also provides tax-free income. If you will be receiving income from a pension plan or Registered Retirement Savings Plan (RRSP) in retirement, an alternate source of tax-free income is beneficial as it allows you to draw income when you need it – without worrying about how it will impact your taxes.
Some additional benefits are:
Ready to start your million-dollar journey?