In keeping with Statistics Canada’s 2023 contribution knowledge, the common Tax-Free Financial savings Account (TFSA) steadiness for Canadians aged 50 to 54 sat at simply $30,190. Much more putting? The common unused contribution room was a staggering $57,855.
That hole tells a robust story. Many Canadians getting into their peak incomes years are leaving one of the crucial highly effective wealth-building instruments largely untapped.
At age 50, retirement is now not a distant idea. But the numbers counsel {that a} important alternative for tax-free progress stays on the sidelines.
The $57,855 alternative most 50-year-olds aren’t utilizing
A TFSA isn’t only a financial savings account. It’s a tax defend.
Curiosity earnings earned in non-registered accounts — reminiscent of from assured funding certificates (GICs) or bonds — is taxed at your full marginal tax fee. For middle- and high-income earners, that may considerably erode returns. Holding those self same fixed-income investments inside a TFSA eliminates that tax drag solely.
Even eligible Canadian dividends, although taxed extra favourably than curiosity in taxable accounts, can compound extra effectively inside a TFSA. Buyers with unused room may contemplate transferring dividend-paying shares into their TFSA. Nonetheless, be conscious: transferring belongings “in type” from a non-registered account is deemed a sale for tax functions, that means capital beneficial properties tax might apply within the yr of switch.
Nonetheless, with almost $58,000 in common unused room, many Canadians at 50 have substantial capability to reposition belongings strategically.
Why age 50 is a vital compounding window
At 50, buyers sometimes have 15 years till the standard retirement age of 65. However investing doesn’t cease at retirement. With Canadian life expectancy round 82 years, portfolios typically must help +30 extra years of progress and earnings.
That is the place the TFSA shines.
Shares that develop money distributions could be notably highly effective on this account. Take Brookfield Infrastructure Companions (TSX:BIP.UN), for instance. The worldwide infrastructure operator owns diversified belongings throughout utilities, transport, midstream vitality, and knowledge infrastructure — the latter providing particularly robust long-term progress potential.
At the moment yielding about 4.6%, BIP forecasts long-term funds from operations progress of not less than 10% yearly, supporting distribution progress of 5–9% per yr. Conservatively, buyers may goal complete annual returns close to 10%, with an earnings stream rising not less than 5% yearly — tax-free inside a TFSA (apart from sometimes negligibly small quantities of international withholding tax on part of the distribution).
Progress shares additionally deserve severe consideration. Alimentation Couche-Tard (TSX:ATD), the worldwide comfort retailer operator and consolidator, has elevated its dividend by greater than 25% yearly over the previous 15 years. After its unsuccessful bid to amass the Japanese-owned 7-Eleven, administration launched a strategic plan targeted on strengthening core classes whereas increasing progress initiatives.
From fiscal 2027 to 2030, Couche-Tard targets adjusted earnings-per-share (EPS) progress of not less than 10% yearly, supported by consolidated same-store merchandise income progress of 2-3%, complete merchandise and repair income progress of 4-5%, street transportation gas gross revenue progress that aligns with inflation, and adjusted EBITDA (a money move proxy) progress of 6-8%, whereas protecting normalized bills at or under inflation.
The inventory yields roughly 1% right this moment, however its low payout ratio together with earnings progress expectations counsel room for continued dividend progress — possible round 10% yearly via 2030.
Inside a TFSA, that sort of compounding turns into particularly highly effective as a result of each greenback of progress and earnings stays untouched by tax.
Investor takeaway
The common 50-year-old Canadian held simply over $30,000 of their TFSA — however had almost $58,000 in unused contribution room. That hole represents a significant missed alternative.
With probably a long time of investing nonetheless forward, Canadians of their early 50s can use their TFSA not only for financial savings, however for strategic tax-free compounding. Whether or not via income-generating infrastructure shares like Brookfield Infrastructure Companions or dividend-growth leaders like Alimentation Couche-Tard, maximizing TFSA room might materially enhance long-term retirement outcomes.
At 50, the window for highly effective compounding isn’t closing — however it does demand motion.