Tax Free Savings accounts are hardly the sexiest of saving tools, but here at BGIP,  we consider them a secret weapon when it comes to your retirement. 

A quick TFSA history…

When Tax-Free Savings Accounts (TFSA) were first introduced in 2009, with a meagre contribution limit of only $5,000, they certainly didn’t demand anyone pay attention to them in terms of a significant wealth-building, income-producing, financial tool.  

They seemed pretty low-key. Low yield. A bit “meh”.

But today that has all changed.  

The TFSA has become a key tool for a financially fit, low-tax, retirement.

Tax Free Savings Accounts grow tax-free, year after year, and also provide tax free withdrawals at any time.  

Unlike an RRSP you do not get to deduct the contribution from your taxable income for the year, but you do enjoy tax free growth and tax free income in your future.  This tax-free income down the road creates a lot of flexible planning opportunities.

In our business, we do a lot of retirement income planning and we use the TFSA Secret Weapon to maximize retirement income. 

We do this by building up the amount of tax free money they have in their account each year, and then use that money to supplement their income in their retirement years.  

This gives them flexible retirement income with the added bonus of paying less tax. 

Win-Win.

This is particularly valuable in your “active” retirement years (typically the first 10 years of your retirement) when you hopefully have your health and mobility.  There are places to go, things to see, and activities to enjoy while you can and of course…

…all of these things typically cost money.

Many of our clients use their TFSA to put extra monthly money in their pockets above and beyond what they already get from monthly pensions, their RRSP or RRIF withdrawals, as well as their Canada Pension Plan and Old Age Security benefits. 

Those dollars go a long way to living your best retirement life. Whether it’s travel, family, health, or home, this supplementary income is the key to retirement happiness.

Another important element of the TFSA account is what you choose to invest it in. 

I am always surprised when I see some people with Guaranteed Investment Certificates (GICs) as their investment choice inside their TFSA. 

Typically a GIC produces a guaranteed rate for some period of time, but the interest rates in recent years have been quite low.  You also lock in your money and lose access to it until the GIC matures. 

The TFSA is meant to be for growth, ideally significant tax free growth, over many years. 

Most of our clients invest in equities (including Artificial Intelligence) within their TFSA, which creates a much greater opportunity for growth over a long period of time.  

See my recent article titled “How to take advantage of the AI boom” for some thoughts on the investment opportunities in the market today.

So far we have looked at the tax free income and the tax free growth, next we will look at the flexibility of a TFSA.

For those of us who have been doing retirement planning for many years, one of the key elements we like to make sure of in any plan, is flexibility.  

No matter how carefully thought out your future plans may be, life has a way of throwing you some curve balls, or financial challenges along the way.  Flexibility in planning is the key to dealing with life, and the challenges along the way.

Health issues, financially supporting the kids or grandkids, and job loss are the main causes of financial distress. There are many more and many of them we all experienced during the last few years.  All of these are good reasons why you may need to access money quickly and easily, and without having to pay a bunch of income tax to get it.

The TFSA is the perfect financial tool to help out in any of these situations.  As long as you are investing in things that are not locked in, you can typically get your TFSA money within a few days, which brings you great peace of mind.

Look, in the short term, piling money into a TFSA is definitely a lot less exciting than new cars, vacations, and renovations but…

... there's nothing more satisfying than having your Secret Weapon TFSA quietly building you a safety net in the background.  Life can throw you all the curve balls it wants, but you’ll be just fine with a little help from your TFSA and the BGIP team. 

Speaking of the brilliant BGIP team, I am thrilled to announce that our brand new office is open at the corner of Perry and Mary  in Port Perry, Ontario (opposite The Old Flame Brewery). We are so excited to serve our community and create financial security and safety nets for all our Scugog friends.

All budgets and big dreams welcome.

Looking forward to working with you soon, 

Brian and the BGIP Team

P.S: Book a 100% no-obligation exploratory call with us today:  https://www.bgip.ca/contact