0:09

Hello and welcome back to the Canadian Money Roadmap

0:11

podcast . I'm your host , evan

0:14

Neufeld . Today's

0:18

episode we are going to take a look to see if it's actually

0:20

possible to become a TFSA

0:23

millionaire . Let's

0:52

back up a little bit before we even

0:54

consider the how and how

0:56

long it will take . Why

0:58

would you even want to do that ? Well

1:04

, first of all , I want to create content

1:06

that people actually want to listen to . Many

1:09

studies show that this number of a million bucks

1:11

is something that most people

1:14

anchor that

1:17

figure to the amount

1:19

that they think they need to retire , the

1:21

amount they feel they need to have

1:23

to feel wealthy , the feel they

1:25

need to have before they can be generous with others

1:28

, all these other things . That million dollar

1:30

figure really looms large

1:32

over people's psychology , and

1:34

so , yeah , I'm going to be a little bit clickbaity

1:36

with the title and the concept of this episode

1:38

, but I want to walk through this idea

1:41

for that reason specifically . Another

1:43

reason why you might actually want to do this

1:45

, regardless of it just being a catchy number

1:47

or a nice round number , is that if

1:49

you had a million bucks in your TFSA say , I'm

1:51

speaking to someone who's 18 years old right now and

1:54

you had a million bucks in your TFSA later on in life

1:56

. That would provide a pretty significant retirement

1:58

income in addition to the other

2:00

sources of income you're very likely to have , especially

2:03

those like your government benefits , like old age

2:05

security and the Canada pension plan . We're

2:08

very fortunate here in Canada to have programs

2:10

like that that are funded in a much

2:12

more sustainable way than those of

2:14

our counterparts down in the United States

2:16

and other parts around the world as well . I'd like

2:18

to do some more episodes coming up in the future about

2:21

government pensions and how these are

2:23

numbers that we can really rely on , but in

2:25

addition to those , I wanted to talk today

2:27

, of course , about tax-free savings accounts and

2:29

building those up . Another reason why you'd

2:31

want to potentially have a goal of becoming

2:33

a TFSA millionaire is the hundreds

2:36

of thousands of dollars of taxes

2:38

that you'd be able to save when

2:40

you compare to any of the alternatives

2:43

. This doesn't necessarily mean that investing

2:45

in a TFSA is the absolute best way

2:48

to invest for every single person , but

2:50

it's not the worst way for anybody . It's

2:53

one of those things that I can recommend

2:55

wholeheartedly to anybody in their situation

2:58

, but if you're looking for the absolute best

3:00

, there might be other versions of it , but

3:02

in terms of just the pure taxes that

3:04

you'd be able to save . The TFSA

3:07

, and investing primarily in the TFSA

3:09

, is the best way to save the most money

3:11

and taxes over the course of your whole life . Why

3:13

does that matter ? No-transcript

3:16

. You know , paying taxes isn't the worst thing in the world . However , taxes

3:18

are the largest expense that you are going to have in

3:20

your life . Whether that's income taxes

3:22

, property taxes , sales

3:25

taxes , you name it . By

3:27

far taxes are the largest expense

3:29

you're going to have in your life . And so

3:31

as things get more and more expensive as

3:34

wages perhaps don't necessarily

3:36

keep out with inflation , as housing

3:38

gets more and more expensive , looking at

3:40

your largest expense of

3:43

taxes and starting today

3:45

to reduce that tax bill in

3:47

the future , you'll be able to keep

3:49

more that money in your own pocket and

3:51

even for your kids and

3:54

subsequent generations . So this

3:56

is episode is relevant for people

3:58

as young as 18 , but also those that are

4:00

close to or even in retirement

4:03

. Right now , this isn't going to be a comprehensive

4:05

TfSA breakdown or anything like that , but

4:08

just more looking at the aspirational

4:10

nature of how good a TfSA can actually be the

4:13

last reason why you might want to consider this and

4:15

really prioritizing your TfSA for your long-term

4:17

investment plan is that it allows you to

4:19

have the most flexible retirement spending

4:22

compared to any of the other alternatives

4:24

. I have a client who has

4:26

mentioned that they want to help out their kids

4:28

with buying a house . However

4:30

, most of their money is tied up in RSPs

4:33

and defined contribution

4:35

pension plans and if

4:37

you wanted to take out a significant sum of

4:39

money , all of that money that

4:41

you take out of your plan , even though it's yours , it

4:44

is taxable , and so the tax

4:46

bill that comes associated

4:49

with those withdrawals from your RSPs

4:51

and your pension plans , that can really get in

4:53

the way of the long-term sustainability

4:55

of your retirement . In

4:58

addition to that , because we work

5:00

on a tax system that kind

5:02

of pools together all of your income and

5:04

taxes it based on the different bracket

5:06

that you might be in , if you're taking

5:09

out significant lump sums to say

5:11

buy a new vehicle or go on

5:13

a significant trip or give to your

5:15

kids or whatever the case may be

5:17

, that will increase the rate of taxes

5:20

that you pay in total , because

5:22

the more income you have , the more

5:24

tax you pay on each incremental

5:26

dollar , depending on the tax bracket

5:28

that you're in . However , if you're

5:30

in a tax-free savings account . It doesn't matter if

5:32

you're retired or not , it doesn't

5:34

matter at all . You can always take out any

5:37

money from your TFSA and

5:39

spend it however you want , and none of it will

5:41

ever touch your tax return . Even

5:43

if you pass away , your TFSA

5:45

can transfer to your spouse and it

5:47

can remain tax-free , invested forever

5:49

. Or if you have kids or

5:51

even friends or anything like that , that you want

5:53

to leave your TFSA to , if you were

5:55

to pass away , that money goes to them

5:58

tax-free as well . So

6:00

it's really flexible for spending purposes

6:02

for a variety of reasons , but the idea

6:05

that you can actually build a significant

6:07

sum of money that is completely sheltered

6:09

from taxes is way more

6:11

valuable than most people give it credit for . So

6:14

let's take a look at some of the things that you need to do to

6:16

be able to get to that amount

6:18

of a million bucks in your TFSA

6:20

. First thing that you need to do is you need

6:22

to participate and automate . I've talked about

6:25

this concept before , but that is my foolproof

6:27

way to invest . When I say

6:29

participate , that means that you need to get

6:31

in the game and own assets

6:34

that increase in value along with the stock

6:36

market in some cases , the bond market , but

6:38

you need to be positioned in such

6:40

a way that you can benefit from

6:42

the growth of the stock market over time . You

6:44

don't need to pick stocks . You can buy

6:46

index funds , you can have really diversified portfolios

6:49

, but you just need to participate and

6:51

have your fair share of

6:53

the growth that comes from the stock market in general

6:55

, and automate is the other side

6:57

of that . So you need to participate and need to automate , because

7:00

both you and I Everybody

7:02

has a discipline problem . There are a lot of

7:04

things that will get in the way of us actually making good

7:06

decisions to invest on a regular basis , and

7:09

so I recommend that you automate it . Every

7:11

time you get paid maybe once a month , or whatever

7:13

the case is you transfer some money from

7:15

your bank account to your TFSA and

7:17

it automatically purchases the investments that

7:19

are appropriate for you and your risk profile

7:22

and your stage of life , and you don't have to think

7:24

about it . You don't have to make that decision every single

7:26

month . So , along with those two basic concepts

7:28

of participating and automating , you

7:30

need to have some level of risk tolerance

7:32

to be able to achieve a rate of return

7:35

that's high enough to do it so realistically

7:37

. You cannot save enough money

7:39

just on your own . You

7:41

need to have an investment work

7:43

on your behalf to grow this money for

7:46

you . So if you have a very , very , very

7:48

low risk tolerance , I would say that's

7:50

fine for now , but over

7:52

time you'll have to increase

7:54

your comfortability with

7:56

taking on risk , or else this goal

7:59

of a million dollars in your TFSA will

8:01

not be possible for you during a typical

8:03

human lifetime . So when I talk to people about

8:05

rules of thumb for how much you should be saving

8:08

and investing for your long term goals

8:10

, retirement is the most common one . 10%

8:12

is kind of that nice round number

8:14

figure that is easy

8:16

to point to and it's kind of easy to calculate on your

8:18

own income . And so I wanted to take

8:20

a look and see what is reasonable

8:22

for the median household here

8:25

in Canada . So averages get skewed

8:27

between people that make a lot and people that make

8:29

nothing , whereas the median

8:31

is actually the person that's right in the middle . And

8:34

so when I looked at Statistics

8:36

Canada , I found out that the median

8:38

household after tax income

8:41

so it doesn't matter what province you're in after

8:43

the fact the median household in Canada

8:45

brings in $68,400

8:48

, which is $5,700 a month . And

8:50

so looking at that figure

8:52

and the idea that I really like round

8:54

numbers , especially on a podcast . That's an audio

8:57

platform and it's tough for people to remember really

8:59

specific figures . I

9:01

wanted to talk about the idea of investing

9:03

$500 a month . So if I

9:05

take that $500 a month and I compare it to

9:07

the median household income

9:10

, it's only about 8.7%

9:12

of the take-home pay . Okay , so we

9:14

are below the rule of thumb , but

9:17

it's a number that you can remember . We're going to be talking

9:19

about $500 a month . Another

9:21

thing about $500 a month is that figure

9:23

is currently less than

9:25

the annual contribution room . I'm

9:28

not going to get into that one on this episode , necessarily

9:30

, but you have to keep your contribution room

9:32

in mind and that's dependent on your age , but

9:34

someone who's 18 this year you

9:36

have $6,500 of room , and

9:39

so if you're able to do $500

9:41

a month I know it's probably a big ask for an 18-year-old

9:43

maybe they're still in university , but Anyways

9:46

, the example remains 500 bucks

9:48

a month still keeps you within your

9:50

contribution room . Okay , so if

9:52

you're 18 years old currently , starting

9:54

from nothing , you have $0 invested and

9:57

you're able to scrounge together 500 bucks a month

9:59

to invest in your TFSA and you

10:01

invest it in a globally diversified portfolio

10:04

earning an average of 6%

10:06

. Again , this is round numbers . These aren't guarantees

10:08

, but work with me on this and

10:10

you invest that in your TFSA

10:13

, it will take you approximately

10:15

just a hair over 40

10:18

years to get there . I know I just

10:20

lost a few of you because this is maybe a

10:22

get rich quick approach that you're

10:24

looking for here . No , this is get rich slow

10:26

, but this is get rich in a way that's really

10:29

simple and really tax efficient

10:31

, really straightforward , and you can explain

10:33

it to anybody . It's about as low complexity

10:36

, high benefit as you can get . The

10:38

trade off here is spectacular . So for

10:40

the average person that it retires in Canada

10:42

, the average retirement age is pretty close to 67

10:44

years old . If you're 18 right

10:46

now and 40 years from now , you've got a million

10:48

bucks . So that puts you at 58 years

10:51

old . So the math here says

10:53

that if you put 500 bucks a month in , that

10:55

means you'll have invested $240,000

10:58

out of your pocket . But if the account

11:00

is worth a million bucks , that means

11:02

that you've gained $760,000

11:06

from participating in the stock market , all

11:09

of which is tax free . If

11:11

this was in an RSP , that would not be the case

11:13

. If this was in a non-registered account . That would

11:15

not be the case . Taxes are not applicable

11:17

on either the 240 or

11:19

the 760 . None of it Doesn't

11:22

matter if it stays in there , doesn't matter if it earns

11:24

dividends , doesn't matter if it's capital gains

11:26

, doesn't matter if it earns interest , doesn't matter if

11:28

you withdraw it all at once , you could have a million

11:30

bucks come out of your account . Taxes will

11:32

never show up there . It's pretty great , okay

11:35

. So now what if you are someone who's maybe a little

11:37

bit older and you have some money in your TFSA

11:39

already ? Let's stay with the same 500 bucks

11:41

a month concept . If you're starting

11:43

with $50,000 , that

11:45

40 years shrinks down

11:47

to about 33 . And then if you have

11:50

$100,000 in there I

11:52

know that might sound crazy to some people . You'd

11:54

be surprised how many people listening to this

11:56

podcast probably have $100,000 in their TFSA

11:58

. Take you 28 and a half years from

12:00

now . If you're adding 500 bucks a month

12:02

, that's not too bad . So if

12:04

you're earning an average income

12:07

as a household , again that

12:09

might be you and a partner

12:12

. If you're earning an average amount and

12:14

you're saving even less than a target amount

12:17

and you're retiring at an average

12:19

age , you can actually be a

12:21

TFSA millionaire . It's totally possible

12:24

and very , very few people are

12:26

doing it . There was a study a couple of years ago

12:28

that the Bank of Montreal did , and

12:30

they found that over half of Canadians

12:32

didn't know that you could even invest

12:35

in a TFSA . They thought you could only

12:37

hold cash in there . If you compare

12:39

yourself to the average Canadian

12:41

and you go forward with a strategy

12:44

like this , you will be so far

12:46

ahead of them your head will explode . I

12:48

get people that ask me all the time . It's like oh , do you

12:50

think the government's going to get rid of TFSAs

12:53

because the benefits are too good ? I said well , canadians

12:55

actually have to take advantage of them first before

12:57

it actually becomes a problem in any sort of way

12:59

. And if the average person doesn't know you can

13:01

even invest within a TFSA , we're

13:04

fine for now . Yes , things

13:06

can change , of course , but let's plan

13:08

for the world . That we know already , and most

13:10

countries around the world have a version of the TFSA

13:13

, and Canada is actually a little bit more conservative

13:15

than the versions in the

13:18

US and in Europe . It's not

13:20

bad by any means , but this experiment

13:22

has been run elsewhere and , as

13:25

far as I can tell , I don't

13:27

know of any countries that are getting rid of their programs

13:29

. So what if you say I don't want to

13:31

do this ? For 40 years ? It's

13:33

like , okay , save more , you

13:36

can do more as long as you have the contribution

13:38

room to do it . So if you're over 18 , then

13:40

you'll have more room than that . So the

13:42

people that will have the most contribution

13:45

room are those of us that

13:47

were at least 18 when

13:49

the program launched . The TFSA program launched

13:51

in 2009 . So

13:53

if you're born in 1991

13:55

or earlier , you will

13:57

have the lifetime maximum contribution

14:00

room right now assuming you've never made a contribution

14:02

before of $88,000

14:04

. So if you're currently at

14:07

least 32 years old here in 2023

14:09

and you're saving 500 bucks

14:11

a month , you will never catch up to your contribution

14:14

room . So you have plenty of room to

14:16

do more , to use up the room from

14:18

previous years that you haven't used yet . What

14:20

if you're currently 18 and you want

14:22

to retire again at that average age of 65

14:25

? And you say , okay , I'm just going to

14:27

take full advantage of the TFSA

14:29

room and when it increases , that's

14:32

when I'm going to increase my contribution

14:34

rate . Perfect , if you have your income

14:37

increasing along with inflation

14:39

, that makes good sense to me , and

14:41

the TFSA contribution

14:43

room has increased with inflation ever

14:45

since it launched back in 2009 . It

14:48

doesn't do it every year , it just does it at

14:50

around number of $500 , so

14:52

it'll accumulate kind of in the background and

14:55

then , once it hits the next $500 threshold

14:57

, it'll increase again . So , using a little

14:59

bit of number crunching wizardry behind

15:01

the scenes , if you're 18 right now and

15:04

you take full advantage of your TFSA

15:06

room between now and age 65

15:08

and you're invested in a globally diversified

15:11

portfolio of stocks , using the

15:13

same projections that FP Canada requests

15:15

that we use , which

15:18

points to an average return just over 6%

15:20

, you would project to have

15:22

$3.8 million

15:24

by the time you turn 65 . That's

15:26

incredible . It's like this is totally

15:28

possible . Why would you even bother

15:31

considering looping in an RSP

15:33

or worrying about rental properties

15:35

or anything like that ? This is the one thing that you can

15:37

focus on that can make a huge difference for

15:40

you and even multiple generations

15:42

. Funny thing that I always

15:44

hear online people say yeah , I want

15:46

to invest to create generational wealth

15:48

, like here . It is . The only way to make

15:50

generational wealth is to make sure that the tax man

15:53

doesn't get in the way . Use your TFSA . This

15:55

is the greatest advantage that we have as

15:58

young people and obviously people

16:00

that are much younger than me have more

16:02

advantage because they can invest for far longer

16:04

. But the TFSA is such an amazing

16:06

tool to build generational wealth

16:09

. You just have to have the time . The problem

16:11

is that most people want to spend their money far sooner . I

16:13

want to retire at 45 . It's like , well , okay

16:16

, well hope you have a high enough income and high

16:18

enough savings rate where you can actually make that work . So

16:20

here's some pushback here . So

16:22

inflation is the big one , especially because

16:24

inflation has been in every news headline for the last

16:27

year and a half . So it's like , well

16:29

, you know , once I get to be that old , million

16:31

bucks won't mean anything . It's like

16:33

, well , news flash here inflation is

16:35

going to be a problem for you whether you have a million bucks

16:37

saved or 50,000 saved . I'd rather

16:40

have a million , especially a tax free

16:42

million , because inflation impacts

16:44

you in the tax department as well

16:46

. So if inflation is

16:48

a reason to not invest at all , I would

16:50

say that is the opposite way to approach that

16:52

and say you actually need to invest more aggressively

16:55

to account for inflation . So yeah

16:57

, you're right , mr Hypothetical Pushback

16:59

Person A million bucks today is not

17:02

going to mean a million bucks 40 years from now . However

17:04

, it's still going to be significant money and

17:06

you'd be way better off having that than

17:09

having nothing . Number two that won't be

17:11

enough to retire on . Like I said before , say

17:13

, you're going to be so far ahead of the majority of people

17:15

in this country . It will make your head spin

17:17

. If you can do this simple

17:19

task not easy , but simple

17:22

of investing 500 bucks a month from

17:24

now until the day you retire , or more

17:26

, 500 or more , you can do

17:28

that you will be so far ahead of

17:30

the average Canadian . It's just unbelievable

17:33

. Or if you're saying , well , that won't be enough to

17:35

retire on , it's like , okay , well , then do more , right ? So

17:37

like , if you can save more than that , please

17:39

do it . Like let's go . I'm not limiting

17:42

anybody here . And if the pushback

17:44

is genuinely that you , you don't have the capacity

17:46

to save , that's going to be a real challenge . And

17:49

there are programs like

17:51

the Canada Pension Plan and Old Age Security

17:53

and the guaranteed income supplement that

17:55

will help provide income for those folks who

17:58

can't invest anything on their own

18:00

, but for most of us that

18:02

have more income that

18:04

allows us to spend on things that we don't necessarily

18:07

need , I would encourage you to take a look at that budget

18:09

and see how much you can be saving , because

18:11

the only solution is

18:13

either to make more or spend less . There's

18:15

not a whole lot of magic out there . Racking

18:18

up credit card points , investing

18:20

in crypto , buying lottery tickets , whatever

18:22

these aren't reliable ways to

18:24

get further ahead than your income would currently allow

18:27

. Unfortunately , that's the reality

18:29

that to be able to save something , you either

18:31

have to make more or spend less . I don't

18:33

want to be too blunt or turn people off

18:35

, but I also don't want to give you any BS

18:38

. That just isn't true and that's unfortunately

18:40

, just the fact of the matter . So a lot of the pushback

18:43

comes down to a lot

18:45

of mindset issues , and having

18:47

that be the thing that gets in the way of people actually

18:49

taking some action . Don't let inflation

18:51

or the fear that it's not going to be enough

18:54

Keep you from doing anything at all

18:56

. I would hope that those types

18:58

of feelings would actually spur you to do

19:00

even more if you have the capacity

19:02

to do that . So in conclusion here is

19:05

it possible to be a TFSA millionaire or

19:07

have a million bucks in your TFSA ? Yes

19:09

, definitely possible . With the

19:11

median household income investing

19:13

8.7% of your take on pay

19:15

. For the median Canadian . It is possible

19:18

over a typical working career and

19:20

actually significantly shorter than a typically working

19:22

career . So by doing that and saving

19:24

at that pace , you'll actually be able to generate

19:26

significant retirement income entirely

19:28

tax free . You will save hundreds of

19:30

thousands of dollars in taxes in

19:32

the future by doing this way . It's stupid

19:35

simple . You can have one account . You could

19:37

put it in a single fund . Go back a couple weeks

19:39

and listen to my episode on single fund strategies . You

19:41

can have one account , one fund , retire

19:44

tax free . That's not bad . You'd think

19:46

if it was that simple , I'd be out of a job . The problem

19:48

is that very few people are going to do that . Very

19:51

few people are willing to even

19:53

do that . They're looking for ways to get cute

19:55

and creative and yeah , I'm oversimplifying

19:58

that . There are complexities out there that people run

20:00

into beyond this . But prioritizing

20:02

your TFSA first can

20:05

be a really great option for anybody

20:07

at any income level , and it ensures that

20:09

you have the most flexible retirement that

20:11

you can possibly have , free of taxes

20:13

. You can transfer the money to your kids

20:15

if you pass away , transfers

20:17

to your spouse if you pass away , and they

20:20

can absorb it and have a double TFSA

20:22

themselves . It's a really , really great

20:24

tool and , for those of you that

20:26

have the discipline to keep things

20:28

simple , you will never regret prioritizing

20:31

your TFSA to have a tax

20:33

free retirement . I'm really excited

20:35

to do more TFSA content in

20:37

the future . If that's something that's interesting

20:39

to you , let me know in my email . My

20:41

contact info is in the show notes . You can email me

20:43

at hello at evannewfieldcom , and

20:46

let me know what questions you have in

20:48

regards to TFSAs . Looking forward to

20:50

more . Thanks for listening today and have

20:52

a great summer . Thanks

20:55

for listening to this episode of the Canadian Money

20:57

Roadmap Podcast . Any

20:59

rates of return or investments discussed are

21:01

historical or hypothetical and are

21:03

intended to be used for educational purposes

21:05

only . You should always consult with your

21:08

financial , legal and tax advisors

21:10

before making changes to your financial plan . Evan

21:14

Newfield is a certified financial planner and registered investment

21:16

fund advisor . Mutual

21:19

funds and ETFs are provided by Sterling

21:21

Mutuals Inc .