This is the TFSA Balance You’ll Likely Need to Retire Comfortably in Canada

A $500,000 Tax-Free Savings Account (TFSA) is a retirement number worth taking seriously. It’s not the only number or a magic wand. It will not make grocery prices apologize for their behaviour. Yet for many Canadians, a TFSA around that size could be the difference between “I can retire” and “I can retire without checking my bank app like it owes me money.”

Getting started

The reason starts with income. Statistics Canada reported that, in 2023, the median after-tax income was $79,700 for senior families and $36,400 for unattached seniors. Those numbers give investors a useful benchmark for what retirement actually looks like in Canada, not the brochure version with linen pants and a sailboat.

Government benefits help, but they may not cover the whole bill. The average Canada Pension Plan (CPP) retirement pension for new beneficiaries at age 65 was $877.01 per month in April 2026, while the maximum Old Age Security (OAS) pension for Canadians age 65 to 74 was $751.97 per month for July to September 2026.

Together, those two payments could add up to roughly $19,500 a year before tax for someone receiving the average CPP and maximum OAS. Some Canadians will receive more. Others will receive less. Either way, many retirees still need investments to fill the gap.

Closing that gap

That is where the TFSA becomes so useful. Unlike a Registered Retirement Savings Plan (RRSP), TFSA withdrawals do not count as taxable income. They also do not reduce OAS benefits. That gives retirees flexible, tax-free cash flow when they need it most. Retirement income planning loves flexibility.

So why $500,000? A TFSA worth $500,000 could support about $20,000 a year using a 4% withdrawal rate. Add that to CPP and OAS, and a single retiree could get closer to the income level many Canadians already live on in retirement. For a couple, the target may look more like $1 million across two TFSAs, depending on pensions, housing costs, debt, health needs, and lifestyle.

That sounds like a mountain. Yet investors do not need to climb it in one dramatic leap while holding a tiny flag. They need time, steady contributions, and investments that can grow for decades. So investors looking for that kind of long-term TFSA holding may want to consider the Vanguard S&P 500 Index ETF (TSX:VFV).

VFV

VFV is an exchange-traded fund (ETF), not an individual stock, and it seeks to track the performance of the S&P 500 Index before fees and expenses. That gives Canadian investors exposure to many of the largest U.S. companies through one simple Canadian-listed ETF.

That can work well inside a TFSA because growth compounds tax-free. Investors do not need to pick the next big winner, then hope it behaves itself. VFV stock spreads money across major U.S. companies, including technology, healthcare, consumer, financial, and industrial names. It’s a boring structure, but powerful in outcome, and boring pays bills.

The key metric is cost. VFV stock holds a management expense ratio of 0.09% without fee waivers or absorptions. Low costs matter over decades as every dollar not lost to fees stays invested. The fund is also large and liquid with a 0.84% yield and return of about 14% year to date at writing. VFV stock holds more than $34 billion in total assets, giving investors a well-established option for long-term U.S. market exposure.

The risk is market concentration. VFV stock depends on U.S. large-cap stocks, and the S&P 500 can lean heavily toward its biggest technology companies. If U.S. stocks stumble, VFV stock will feel it. Currency moves between the Canadian and U.S. dollars can also affect returns.

Bottom line

Even so, a TFSA built for retirement needs growth. Cash alone may feel safe, but inflation can nibble away at it like a raccoon in a green bin. VFV gives long-term investors a simple way to pursue growth while keeping future withdrawals tax-free.

A $500,000 TFSA will not happen overnight. Yet Canadians who start early, contribute regularly, and let a low-cost ETF compound still have time to turn today’s room into tomorrow’s retirement comfort.

The post This is the TFSA Balance You’ll Likely Need to Retire Comfortably in Canada appeared first on The Motley Fool Canada.

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More reading

• 2 Canadian ETFs I’d Lock Into a TFSA and Never Touch
• Canadians: Here’s How Much You’ll Likely Need in Your TFSA to Retire
• The TFSA Fine Print Every Canadian Should Read Before Holding U.S. Stocks

Fool contributor Amy Legate-Wolfe 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.