Canadians between the ages of 70 and 74 have a lot of unused contribution room in their TFSA, which means they could make a lot of tax-free money and grow their money.
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Important Points
- The average TFSA balance for Canadians between the ages of 70 and 74 is $56,106, and they have $40,775 in unused contribution room.
- This empty space is a huge opportunity for tax-free income and investment growth that hasn’t been used yet.
- Retirees might want to look into safe GICs, diversified ETFs, or dividend-paying stocks like BCE to make more money.
- Ten stocks we think are better than BCE Inc.
Statistics Canada just released new data for the 2023 contribution year. It shows that the average balance in the Tax-Free Savings Account (TFSA) for Canadians aged 70 to 74 was $56,106. That number by itself seems reasonable. But what might be even more surprising is that this age group had an average of $40,775 in unused contribution space.
That means a lot of Canadians in their 70s are not using a lot of tax-free investment opportunities. This unused space is a great chance for retirees who want to make more money without paying more taxes.
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Why it’s important to have unused TFSA space
One of the best things about the TFSA is that you don’t have to pay taxes on any money you make from investments, like interest, dividends, or capital gains. Withdrawals also don’t change your eligibility for income-tested benefits like the Old Age Security (OAS) and Guaranteed Income Supplement (GIS) government retirement programs.
That flexibility makes the TFSA one of the most useful financial tools for many retirees. But the Statistics Canada data shows that people are missing out on thousands of dollars in possible tax-free growth.
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Even investors who are careful could gain. If a person 70 or older put the average unused contribution room of $40,775 into safe Guaranteed Investment Certificates (GICs) that earned about 3% a year, they would make about $1,223 a year in tax-free interest. That may not sound like a big deal, but it’s extra money that could help pay for groceries, utilities, or travel without raising your taxable income.
Putting money into investments for stability and growth
You can put a lot of different kinds of investments in a TFSA, such as cash, bonds, mutual funds, stocks, and exchange-traded funds (ETFs) that are listed on certain stock exchanges.
If you’re a retiree and don’t plan to use your money for at least three to five years, diversified equity ETFs may give you better long-term returns than cash or GICs. The S&P/TSX 60 Index through funds like the iShares S&P/TSX 60 Index ETF and the SPDR S&P 500 ETF Trust, which gives you access to the U.S. market, are two well-known examples.
For retirees who want a steady income, dividend-paying stocks can also be very important. As an example, BCE (TSX:BCE), a big Canadian telecom company, has a dividend yield of almost 5% and the stock is trading for about $35 per share.
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The company’s earnings and free cash flow should continue to support BCE’s dividend, which is expected to be about 70% and 63% of earnings, respectively. That means the company’s dividend could stay stable as long as its business stays stable.
A simple example of how much money you can make with a TFSA
It’s always a good idea to spread your money out over a number of investments. Putting too much money into one investment is rarely a good idea. But it’s still useful to show what unused TFSA space could do.
If you put the whole $40,775 in unused contribution space into BCE shares, you could make about $2,015 a year based on the company’s current annualized dividend of about $1.75 per share. Those dividends would be completely tax-free because the investment is in a TFSA.
If you’re a retiree who wants to make more money without taking on too much risk, a mix of dividend stocks, ETFs, and fixed-income investments could help you make a lot more money each year.
What retirees should take away
According to Statistics Canada, Canadians between the ages of 70 and 74 had an average of $40,775 in unused TFSA contribution room. That empty space is a great chance to make money without paying taxes.
Putting that space to work could bring in hundreds or even thousands of dollars a year, whether you invest in safe GICs, diversified ETFs, or dividend-paying companies like BCE. Maximizing the TFSA is still a smart and often overlooked way for retirees to improve their financial security.
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