Retire at 50? How to Reach a $1 Million TFSA Faster With TSX Dividend Stocks
Written by Christopher Liew, CFA at The Motley Fool Canada
Retiring at 50 is an ambitious goal and you need to be determined to succeed. According to pension experts, time should be on your side if you want to free yourself from everyday life at an early stage. In addition, 100% of the money saved must be invested.
Younger Canadians have a higher chance of success because of the Tax-Free Savings Account (TFSA). The unique investment account was created to help Canadians meet their savings goals and build retirement savings.
The TFSA has significant benefits, most notably tax-free money growth and withdrawals. Any capital gains, interest or capital gains on the contributions are never subject to taxation. You can also transfer unused contribution rooms to future years.
Three steps
The first step on the path to $1 million and early retirement is to start investing as soon as possible. A 25 or 30 year window is ideal, but it means you must be 20 or 25 today. Second, maximize your TFSA contributions each year. TFSA Posting Rooms accumulate every year. The cumulative limit since 2009 is now $81,500.
The third and equally crucial step is the selection of the investments. Large bank stocks are staples in a TFSA portfolio. Canada’s top two banks are smart choices because of their attractive yields, security of dividends, and consistency of payouts. Either TSX dividend stock won’t disappoint.
Shares of the big banks
Royal Bank of Canada (TSX:RY) pays a dividend of 4% while Toronto Dominion Bank (TSX:TD) returns 4.07%. The stock price of the former ($128.15) is higher than that of the latter ($87.48). Let’s use the respective returns and the maximum cumulative TFSA limit of $81,500 as the investment amount for the sample calculations.
If you continue to reinvest RBC and TD quarterly dividends, the final TFSA balance in 30 years is $268,981.53 and $274,632.27, respectively. The results illustrate the power of compounding in a TFSA when you reinvest the dividends. Plus, higher dividend yields bring you closer to your TFSA goal of $1 million.
TFSA holdings for life
RBC and TD aren’t the biggest dividend payers on the TSX, but your money should be safe. Even if you can’t reach $1 million or retire at 50, you can keep both bank stocks in your TFSA for life. In addition to the Canada Pension Plan (CPP) and Old Age Security (OAS), you have a regular retirement income.
Both banking giants are in expansion mode despite the challenging environment. On October 5, 2022, RBC announced that it was acquiring MDBilling.ca, a cloud-based platform that automates medical billing for Canadian doctors. In addition to pushing into healthcare, the $175.66 billion bank hopes to attract more customers in that sector.
TD is awaiting regulatory approvals for two strategic acquisitions in the United States. The $153.62 billion Canadian lender becomes one of the top six banks by asset size in America with the acquisition of First Horizon. TD’s acquisition of independent trader Cowen will accelerate its long-term growth strategy and strengthen its presence in the prime brokerage market.
Make TFSA contributions
Saving in 2022 is difficult, if not stressful, due to high inflation. However, it would help to contribute some money to your TFSA. If you’re worried about market volatility, buy RBC or TD stock to be on the safe side.
The contribution pension at 50? How to Get to $1 Million TFSA Faster with TSX Dividend Stocks appeared first on The Motley Fool Canada.
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Stupid contributor Christopher Liew 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.
2022