HOW TO EARN BIG TFSA INCOME TO SET YOURSELF UP FOR RETIREMENT

Canadians are likely stressed out right now when it comes to their finances. But it’s likely particularly bad for those who are trying to save for retirement. You’re watching your investments perhaps sink lower and lower. And no amount of dividend income is going to suddenly turn this around.

However, if you’re looking to set yourself up for retirement in the long run, then it’s a great time to get started. With shares of blue-chip companies down right now, you may not see these prices again! But where and how should you invest? Today, we’re going to cover just that.

Consider the TFSA

One of the best places to store your cash for retirement is in the Tax-Free Savings Account (TFSA). I’m not saying you should ignore the Registered Retirement Savings Plan (RRSP) — far from it. Instead, consider contributing to both regularly.

But the benefit of the TFSA is that you can invest and never worry about taxes, and there are no withdrawal limits! While you do have to stay within contribution limits, over time, you could create a mountain of income that won’t be taxed. Furthermore, there is no period of time where you have to take the cash out, as with the RRSP.

So, here is how you go about creating a large income.

Contribute often

If you want to save enormous income in your TFSA for retirement, you need to contribute often. But that doesn’t mean you should contribute a lot of cash. Instead, look over your budget with a fine-tooth comb. See how much you have left after spending what you need to spend in the last three to six months.

From there, what’s left? Try to come up with a reasonable amount you can contribute to your TFSA month after month after month. Furthermore, make it automatic! You can simply go into your TFSA and create automated contributions that will be taken from your account without you having to think about it. These can always be cancelled or changed. But the point is, you’ll start creating savings right away.

Let’s say you put aside $500 each month; that’s $6,000 per year! Do that every year for 20 years, and you’ll have $120,000!

Unfortunately, that’s not enough

As much money as that is, $120,000 isn’t enough to retire on. Instead, you’re going to take another step further and start investing. What’s more, you should consider investing in dividend stocks. This way, the cash you get from dividends can be used to reinvest back into your portfolio. Do this again and again, and you’ll achieve enormous income.

For example, let’s look at what three years of reinvesting looks like with this method. You put in $6,000 each year to a safe company like Fortis (TSX:FTS) with a dividend yield of 4.41%. This dividend remains safe thanks to its investment in essential utilities. Plus, it’s a Dividend King as of this year, with over 50 years of consecutive dividend increases! Dividends have risen by a compound annual growth rate (CAGR) of 6.3%. Shares have risen by a CAGR of 5.4%.

Bottom line

With this information on hand, let’s see what an investment in Fortis stock could create in just three years, just by looking at past performance as an indicator.

In just three years, an $18,000 investment could create a portfolio of almost $26,000! That’s almost $10,000 more just from reinvesting dividends and regular contributions.

The post How to Earn Big TFSA Income to Set Yourself Up for Retirement appeared first on The Motley Fool Canada.

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• If You Like Dividends, You Should Love These 3 Stocks
• Recession-Proofing With Dividends: Canadian Picks That Stand the Test of Time

Fool contributor Amy Legate-Wolfe has no position in any of the stocks mentioned. The Motley Fool recommends Fortis. The Motley Fool has a disclosure policy.

2023-10-25T00:23:12Z dg43tfdfdgfd