What a Typical Canadian TFSA Actually Looks Like at 55

What does the average TFSA (Tax-Free Savings Account) look like for a Canadian in their mid-50s? The actual amount is quite lower than the TFSA contribution room, which now sits comfortably above that $100,000 level. As for an average balance, it’s around less than half utilized, so in the ballpark of $35,000 to around $44,000. It’s quite a broad range, but, for the most part, those who are entering their last year in the workforce can expect to make up for lost time. For a TFSA investor with room, but not enough cash, trimming away at expenses or upping one’s income is the answer.

But amid inflation, it’s far easier said than done. Either way, a quicker fix for someone who wants to grow their TFSA, rather than just letting it sit in cash, vulnerable to the effects of inflation, is to invest rather than keep liquidity parked in interest-bearing accounts. Of course, GICs (Guaranteed Investment Certificates) are a favourite among older investors, especially when it comes to the TFSA, where capital losses cannot be used to offset gains elsewhere.

Ideally, it’d be nice to utilize one’s TFSA fully by ensuring all their available room is taken advantage of. Then, embracing stocks could be the way to go, especially for those who’ve grown sick of the low rates on savings. With GICs almost offering considerably less than recent memory, perhaps jumping into a dividend growth play or ETF could make the most sense.

Vanguard All-Equity ETF Portfolio

Any way you look at it, though, the average 55-year-old’s TFSA might not be in the optimal spot. For those in a similar situation looking to correct this, I do think the Vanguard All-Equity ETF Portfolio (TSX:VEQT) could be a great buy. As the name of the ETF suggests, it’s all-in on the equities.

Looking under the hood, you’ll see that the management expense ratio (MER) is in a pretty competitive spot considering the geographic diversification you’ll get out of the one-stop-shop ETF. With a good allocation to the tech-heavy U.S. market, as well as Canada and international markets (developed and emerging exposure), perhaps there is no better passive play for investors who don’t want to have to pick and choose stocks or other investment products.

While the TFSA could be a great place for individual names as well, most notably stocks with above-average dividend yields and long histories of increasing payouts each and every single year, I do find that the most important thing for TFSA investors, especially those in their 50s, is to invest rather than hoard cash as inflation rears its ugly head again. Indeed, don’t expect the Bank of Canada (BoC) to start increasing interest rates anytime soon, even as the grocery store gets seemingly more expensive every time we visit.

The bottom line

In short, the average 55-year-old’s TFSA is far from optimal. In my humble opinion, it’s too heavy in the cash and GICs, and too light on the stocks. For those who can contribute and invest, I do think making up for lost time is more than possible, especially before retirement.

The post What a Typical Canadian TFSA Actually Looks Like at 55 appeared first on The Motley Fool Canada.

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Fool contributor Joey Frenette 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.