Canadians: Here’s How Much You Need in Your TFSA to Retire

The Tax-Free Savings Account (TFSA) might have been introduced as a savings account. For those with a savvier mind for investing and making the most of their investment capital, the TFSA is an unmatched investment vehicle that can unlock substantial long-term wealth growth.

For any Canadian, the TFSA can be an excellent part of a solid retirement plan. The account lets you unlock the power of compounding in a tax-sheltered space. Any contributions you make to the account are made through after-tax dollars, letting you enjoy the returns without incurring income tax on interest and dividends, or capital gains tax as the assets appreciate in value.

How much you might need in a TFSA to retire

Since no two people are the same, there isn’t a one-size-fits-all figure for how much you must have in a TFSA to retire. However, we can understand the basic principles and how to get an idea of your approach to successfully pulling it off. Suppose that a comfortable retirement in Canada requires around $60,000 per year.

The government pensions like the Canada Pension Plan (CPP) and Old Age Security (OAS) benefits are there to help Canadian retirees. However, these pensions are there to cover only part of the expenses you might have. To truly enjoy the golden years of your life, you must create passive income streams that can cover the gap.

This is where your TFSA can come in handy. Any withdrawals you make from a TFSA are tax-free and do not contribute to your taxable income. This means the returns from a TFSA can help you more than returns from investments held in taxable accounts. Fortunately, there’s no shortage of excellent investments you can buy and hold in a TFSA.

Here are two that you can consider.

Earn like a lazy landlord

Buying investment properties and earning rental income is a popular choice for Canadians. However, it comes with many hassles that can make it hardly qualify as a passive income stream. Investing in Real Estate Investment Trusts (REITs) can be a great way to earn like a landlord but without the hassle.

RioCan REIT (TSX:REI.UN) is a good REIT to consider for this purpose. The $6.6 billion market-cap trust owns and operates an extensive portfolio of mixed-use and necessity-based properties in densely populated communities across Canada.

The trust maintains high occupancy levels across its properties, supported by a solid tenant base and well-placed locations in major urban markets. Distributing monthly payouts at an annualized 5% dividend yield, it can be an excellent dividend stock to own in a TFSA for the long run.

Bank of Montreal

Boasting a $164.9 billion market capitalization, Bank of Montreal (TSX:BMO) is one of the Big Six Canadian Banks. Canadian bank stocks, especially the Big Six, offer a reliable long-term anchor for dividend earning. While you cannot go wrong with any of its closest peers, BMO is the oldest bank stock in Canada and has paid investors their quarterly dividends for almost two centuries without fail.

The bank has a strong competitive position, diversified revenue streams, and a reputation for being a stable investment to hold for decades. In recent years, the bank has expanded its operations into the US, further diversifying its earnings. As of this writing, it trades for $235.49 per share and boasts a 2.9% dividend yield.

Foolish takeaway

Held in a TFSA, these stocks can significantly boost your annual returns through dividends alone. Here’s a look at how $120,000 split across these two stocks can generate around $4,700 per year in tax-free dividends.

TickerRecent PriceTotal InvestedNo. of SharesAnnualized Dividends per ShareFrequencyTotal Dividend Payout per YearBMO$235.49$60,000254$6.84Quarterly$1,737.36REI.UN$22.77$60,0002635$1.158Monthly$3,051.33Total Annual Payout$4,788.69

The post Canadians: Here’s How Much You Need in Your TFSA to Retire appeared first on The Motley Fool Canada.

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More reading

• How Much a Typical 45-Year-Old Has in TFSA and RRSP Accounts
• 1 Top Canadian Stock I’d Buy Before the Next Bank of Canada Rate Move
• Why Smart Investors Are Eyeing These 3 Canadian Stocks Right Now
• 3 Dividend Stocks Yielding X% Canadians Can Own Even When Growth Falls Out of Favour
• This is the TFSA Balance You’ll Likely Need to Retire Comfortably in Canada

Fool contributor Adam Othman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.