The Average TFSA Balance for Canadians at 55

Turning 55 is an important milestone for any Canadian. At this age, your financial status will determine the best age for you to begin collecting your payouts from the Canada Pension Plan (CPP). The Canada Revenue Agency (CRA) takes the best 39 years of contributions you make to your CPP between the ages of 18 and 65 to determine your CPP payout.

If you do not have any active income stream from a job or business when you turn 55, it might make more sense for you to begin collecting your CPP benefits by 60. While the CPP might not provide complete coverage for your daily expenses, a sizeable balance sheet in a Tax-Free Savings Account (TFSA) can help you with an early retirement.

Despite the tax-sheltered status of the account and the ability to generate tax-free returns, most Canadians don’t maximize the potential that the TFSA offers. According to data from Statistics Canada from the 2023 tax year, the average balance of Canadians aged 55–60 stands at $37,600.

Unlocking your TFSA’s value for an earlier retirement

A solid retirement plan doesn’t necessarily have to involve you working till you’re 65. The power of tax-free withdrawals with a TFSA does not affect your CPP and Old Age Security (OAS) benefits. With the withdrawals not impacting your personal tax returns, the TFSA offers a significant advantage, and more Canadians should take advantage of that.

Besides the low average balance, Statistics Canada also reported that total contributions were approximately $9.9 billion, almost double the $4.9 billion in withdrawals from TFSAs. The massive gap between the average and the total shows how the average is not exactly the benchmark you should aim to achieve.

Why the average isn’t a good benchmark

A $37,600 TFSA balance in 2023 means investors have been underusing their cumulative contribution room of almost $90,000. After the 2026 update, the cumulative TFSA contribution room since the launch of the account is $109,000, showing plenty of unused contribution room. Even with a modest return of 3%, it can provide around $3,270 per year in tax-free returns.

At 55, you still have about a decade to retire, which can be adequate time to build a sizeable portfolio. That said, the longer the investment horizon, the better the returns will be when you invest in quality dividend stocks that offer capital appreciation and regular dividends.

One stock that can be an excellent long-term TFSA holding is Manulife Financial Corp. (TSX:MFC). The $86.7 billion market-capitalization Canadian company provides financial services across Canada, the US, Asia, and other international markets. Manulife is one of Canada’s biggest insurers and has significant wealth and asset management operations.

Beyond the fees and premiums it collects, Manulife generates cash flows by investing some of its collections to generate another stream of income. Besides strong operations in the domestic market and in the US, Manulife has built a strong presence in the Asian markets. The company’s scale also spreads costs across a large customer base, providing further security for its financials.

Foolish takeaway

Manulife Financial boasts a solid business model with great defensive appeal and the ability to deliver substantial growth through dividends and capital gains in the long run. As of this writing, Manulife Financial stock trades for $51.72 per share and pays investors $0.49 per share each quarter, translating to a 3.8% dividend yield that you can lock into your self-directed TFSA portfolio today.

The post The Average TFSA Balance for Canadians at 55 appeared first on The Motley Fool Canada.

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More reading

• Rates Aren’t Falling: Here’s What I’d Do With My TFSA
• 2 Canadian Dividend Giants to Buy With Rates on Hold
• How to Leverage a TFSA to Effectively Double Your Contribution 
• 5 TSX Dividend Stocks Yielding 3% to 5% for Steady Cash Flow
• What the Average Canadian TFSA Balance Looks Like at Age 50

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.