I surprised myself with this one. 

I’m going to show you how you can generate a $60,000 income in retirement for the rest of your life with $124,430 less savings using the Tax Free Savings Account.

Scenario 1 is the traditional scenario of a person that only invests in RRSPs. Scenario 2 is what we’ll explain in the remainder of this email.

Scenario 1Scenario 2
RRSP/Pension Savings $736,100RRSP Pension Savings $329,030

TFSA Savings $282,640

Total Savings – $611,670

Let’s get into the numbers of how this works.

Step 1- Begin with your Government Benefits.

With the Canada Pension Plan (CPP)- The maximum benefit for a person retiring at age 65 in 2019 is $1,154.58/month or $13,854.96/year.

Old Age Security begins at age 65 for everyone earning less than $77,580 net income in retirement. The maximum benefit is $601/month or $7,212/year.

This provides you an annual income of $21,066.96/year.

Step 2- Set-up income stream with Registered Assets (RRSPs & Pensions)

To generate the last $38,900/year for your retirement, you will need $736,100 in registered savings. You can do this with any combination of RRSP and Pension savings. 

Now I want you imagine…

That the TFSA was available to you your whole life, and you were able to contribute the maximum from age 40 to 65. You would generate approximately $282,640 in your TFSA at age 65. 

And that would give you $14,909/year of after tax income. 

Now you only need to cover $12,321/year (after taxes) in RRSP or Pension money which is only $329,030. 

That’s how you need $124,430 in savings to get the same retirement income.

Crazy I know!

If you want to get a detailed tax and retirement plan, we’ve got a couple spaces free this week to chat to see if this what works for you: http://zabafinancialgroup.ca/retirement-session/


Mitch Zaba

P.S. I had to make a few assumptions when running these calculations. Retirement Age: 65, Life Expectancy: 90, Inflation: 1.5%, Rate of Return: 4%, Maximum Government Benefits (CPP & OAS), Average taxes- 30%.