Yahoo Finance TFSA Investors: How Much You Need to Invest to Retire in 10 Years
Written by Amy Legate-Wolfe at The Motley Fool Canada
The Tax-Free Savings Account (TFSA) has long been one of the best ways to create cash for your financial goals. Yet did you know the TFSA was meant to be used as another method of saving for retirement? If you’re in your 40s hoping to retire by 50, you’ll want to consider the TFSA. That way, you won’t be dinged by taxes when you decide to take it out. How can you achieve retirement in just 10 years? Here are the steps to start.
How much will you need?
Before you even start investing, you’ll need to figure out exactly how much you’re going to need in retirement. To do that, you’ll need to meet with a financial advisor. However, we can broadly figure out how much you might need in retirement without determining the variables you’ll need to nail down.
If you hope to retire by 50, that means you’ll need to have enough cash on hand to cover over the next 20 years at least. You can still invest during your retirement. However, you’ll need to have enough money to pay your bills as well as do all the things you want to do in retirement in the first place. This might include buying a boat or travelling.
Basically, you’ll need to have saved 20 years’ worth of your salary. So, if you’re making $60,000, you’ll need to have saved about $1.2 million at least. So, how can you achieve that in a decade?
Budget, budget, budget!
You may have already come across those people on social media stating they retired at 30 or something ridiculous, all from investing. First off, most of these people just got lucky. But there is a strategy you can employ.
That strategy is the net-zero budget. You take all the bills you need to pay, the food you buy, clothes, everything, and assign it to a dollar amount each and every month. Then, whatever you’re not using, you assign those dollars to an automated contribution to your investments.
This can add up incredibly quickly, and many have stated doing this allowed them to feel as if they got a raise! There are also applications out there (many through banks) that can keep you in check. So, certainly consider this, and start investing immediately!
An option to consider
Now, let’s use an example. Again, meet with your financial advisor and always discuss investment options with them. But if you have nothing and want to invest in a decade, it’s going to take a major investment. And you’ll need dividends to invest again and again as well.
Consider an option such as Canadian Imperial Bank of Commerce (TSX:CM) for example.
You can grab hold of a 5.68% dividend yield, with shares holding a compound annual growth rate (CAGR) of 3.89%. You can then reinvest that dividend over the next decade. So, let’s see how much you would need to invest to create $1.2 million in your portfolio.
Year | Share Price | Shares Owned | Share Value | Annual Dividend Per Share | Annual Dividend | After DRIP Value | Annual Contribution | Year End Stock Price | New Shares Purchased | Year End Shares Owned | New Balance |
1 | $63.75 | 5,260.00 | $335,325.00 | $3.60 | $18,936.00 | $354,261.00 | $20,000.00 | $66.23 | 588.00 | 5,848.00 | $387,313.04 |
2 | $66.23 | 5,848.00 | $387,313.04 | $3.83 | $22,397.84 | $409,710.88 | $20,000.00 | $68.81 | 616.00 | 6,464.00 | $444,787.84 |
3 | $68.81 | 6,464.00 | $444,787.84 | $3.98 | $25,726.72 | $470,514.56 | $20,000.00 | $71.49 | 640.00 | 7,104.00 | $507,864.96 |
4 | $71.49 | 7,104.00 | $507,864.96 | $4.24 | $30,120.96 | $537,985.92 | $20,000.00 | $74.27 | 675.00 | 7,779.00 | $577,746.33 |
5 | $74.27 | 7,779.00 | $577,746.33 | $4.52 | $35,161.08 | $612,907.41 | $20,000.00 | $77.16 | 715.00 | 8,494.00 | $655,397.04 |
6 | $77.16 | 8,494.00 | $655,397.04 | $4.81 | $40,856.14 | $696,253.18 | $20,000.00 | $80.16 | 759.00 | 9,253.00 | $741,720.48 |
7 | $80.16 | 9,253.00 | $741,720.48 | $5.12 | $47,375.36 | $789,095.84 | $20,000.00 | $83.28 | 809.00 | 10,062.00 | $837,963.36 |
8 | $83.28 | 10,062.00 | $837,963.36 | $5.45 | $54,837.90 | $892,801.26 | $20,000.00 | $86.52 | 865.00 | 10,927.00 | $945,404.04 |
9 | $86.52 | 10,927.00 | $945,404.04 | $5.80 | $63,376.60 | $1,008,780.64 | $20,000.00 | $89.89 | 928.00 | 11,855.00 | $1,065,645.95 |
10 | $89.89 | 11,855.00 | $1,065,645.95 | $6.18 | $73,263.90 | $1,138,909.85 | $20,000.00 | $93.39 | 999.00 | 12,854.00 | $1,200,435.06 |
It would be a huge investment, but in a decade, you could create this cash. It would take purchasing $5,260 shares for $335,325. Then, add $20,000 annually. However, this cannot be done in a TFSA. This is why longer investments can always produce more! So, consider discussing this with your financial advisor today.
The post TFSA Investors: How Much You Need to Invest to Retire in 10 Years appeared first on The Motley Fool Canada.
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Fool contributor Amy Legate-Wolfe has positions in Canadian Imperial Bank Of Commerce. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
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