Canadians are likely feeling stressed about their finances, especially those saving for retirement. With investments potentially dropping, it might seem like dividend income alone won’t be enough to turn things around. However, now could be the perfect time to set yourself up for a comfortable retirement. With blue-chip stocks currently undervalued, you may not see these prices again. So, how and where should you invest? Let’s break it down.
Table of Contents
Why You Should Consider the TFSA
The Tax-Free Savings Account (TFSA) is one of the best tools for building retirement savings. While the Registered Retirement Savings Plan (RRSP) is also important, regularly contributing to both can maximize your benefits.
The TFSA offers several advantages: your investments grow tax-free, and there are no taxes on withdrawals. Unlike the RRSP, there’s no mandatory withdrawal age, so you can let your investments grow for as long as you want. Over time, this can help you build substantial tax-free income.
The Power of Regular Contributions
To build significant income in your TFSA for retirement, consistency is key. However, this doesn’t mean you need to contribute large sums of money. Start by carefully reviewing your budget to see how much you can comfortably set aside each month after covering your essential expenses.
Once you determine a reasonable amount, make your contributions automatic. This way, money will be regularly transferred to your TFSA without requiring any effort on your part. Automatic contributions can be adjusted or stopped as needed, but the goal is to consistently build your savings.
For example, contributing $500 each month adds up to $6,000 annually. Over 20 years, that’s $120,000! But while this is a good start, it’s not enough to retire on.
Why Investing is Crucial
To truly grow your TFSA balance, you need to invest your contributions, especially in dividend-paying stocks. Reinvesting your dividends back into your portfolio can lead to significant income over time.
Consider an investment in a stable company like Fortis (TSX:FTS), known for its reliable dividend payments. Fortis has a dividend yield of 4.41% and is considered a Dividend King, with over 50 years of consecutive dividend increases. The dividends have grown at a compound annual growth rate (CAGR) of 6.3%, while the shares have appreciated at a CAGR of 5.4%.
Canada Retirement Age 2024: Is it 65 or 67?
$1,200 for Low-Income Seniors: Fact Check, Eligibility, and Payment Dates
$300 For Canadian Senior Citizens: What is & Who Qualifies Senior One-time Payment?
Conclude
Let’s see what happens when you invest in Fortis over three years. By contributing $6,000 annually and reinvesting dividends, your initial $18,000 investment could grow to almost $26,000. That’s nearly $10,000 in gains from dividends and regular contributions alone.
By consistently contributing to your TFSA and making smart investment choices, you can build a substantial, tax-free income stream for your retirement.
Disclaimer: The information provided is for educational and informational purposes only. It should not be considered financial or investment advice. The stock market involves risks, and past performance is not indicative of future results. All investment decisions should be based on your own research and due diligence. We do not guarantee any specific outcomes, and we are not responsible for any losses or gains that result from your investments. Always consult with a licensed financial advisor before making any investment decisions.