Here’s the Average TFSA and RRSP for a 40-Year-Old in Canada

By the time most people reach their 40s, they have either started thinking about starting a retirement plan or are actively working on it. Canadian retirement accounts like the Tax-Free Savings Account (TFSA) and Registered Retirement Savings Plan (RRSP) can be crucial to setting yourself up for a more comfortable retirement.

This is the age when your expenses really start piling up and retirement stops sounding like a far-off thing to work towards. Knowing the average RRSP and TFSA balance at this age can put things into perspective for you. It can help you determine whether you need to press harder, adjust your portfolio mix, or simply start planning for your retirement and investing.

Where the average is

According to numbers from the Canada Revenue Agency (CRA) from the 2023 contribution year, Canadians aged 40–44 had an average TFSA fair market value of around $18,800. This should be an alarming figure, especially for Canadians who have been eligible for the TFSA since its inception in 2009. The cumulative contribution room available in 2023 was $88,000. That is a massive gap between the average contributions and the available room.

The flexibility with tax-free withdrawals in TFSAs can justify the unused contribution room. Not every Canadian investor uses it as a tax-free compounding tool. Some prefer using it like a cash drawer to fund expenses without worrying about incurring a higher tax bracket. If you want to focus more on retirement planning, it might be better to start using the TFSA as an investment vehicle instead of a piggy bank for tax-free withdrawals.

The CRA reported that Canadians between 36 and 44 had an average RRSP balance of around $49,000, but the median value stood at around $33,000 in the age band. While better than TFSA numbers, it suggests that many Canadians still have less than the headline average, since RRSPs offer tax benefits through meaningful deductions today and the ability to withdraw at lower tax rates during retirement. If your employer offers matching, you’ll get instant returns. If that isn’t an option, I would advise prioritizing your TFSA.

A dividend giant to grow your TFSA or RRSP

In my books, the best way to close the gap between your current balance in your Canadian retirement accounts and where it should ideally be is through dividend investing and unlocking the power of compounding. To this end, Enbridge Inc. (TSX:ENB) is a dividend stock worth considering for your self-directed investment portfolio.

Due to inflation, cash held in an account might lose value over time because interest rates cannot keep pace with inflation. Enbridge stock offers dividends that are typically higher than the best interest rates, and it increases dividends each year, providing reliable returns through various economic cycles.

Enbridge stock has hiked dividends for the past 32 consecutive years, supported by a resilient business model that generates reliable cash flows year-round. The Calgary-headquartered energy infrastructure company boasts a diversified network of pipelines and assets that transport a lot of the crude and natural gas produced and consumed in North America.

Enbridge also runs one of the largest utility businesses in the region, owing to its acquisitions south of the border. It has a growing portfolio of renewable energy assets, future-proofing it for a greener energy industry down the line.

Foolish takeaway

Chasing short-term gains is not the best way to sustainably grow your TFSA or RRSP for retirement. Investing in high-quality stocks that can provide compounded growth over decades can be a much better approach. As of this writing, Enbridge pays investors $0.97 per share each quarter, translating to a 5% dividend yield that you can lock into your TFSA or RRSP. Boasting a defensive business model, this stock can be an excellent long-term investment to consider.

The post Here’s the Average TFSA and RRSP for a 40-Year-Old in Canada appeared first on The Motley Fool Canada.

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More reading

• Canadians: Here’s How Much You’ll Likely Need in Your TFSA to Retire
• Here’s Where Enbridge Stock Could Be Headed in the Next 3 Years
• 2 Canadian Stocks With the Potential to Build Generational Wealth
• How to Create Your Own Self-Directed Pension With TSX Dividend Stocks
• How to Use a TFSA to Earn $500 a Month — Completely Tax-Free

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