I don’t really care how often you read or hear that “a million ain’t what it used to be”. While true, one million dollars is still a huge chunk of change.
…And we’re working our way towards that amount. Slowly. Month by month and year by year. Why? That’s what we figure we need to semi-retire.
How? By when?
- TFSAs provide tax-free investing power
Although Tax Free Savings Accounts (TFSAs) have been around for less than 10 years, they are a great wealth building tool if used properly. Think about it: tax free money. Do you really want your money just kept in cash savings? I suggest you make your money work for you. I won’t go into the details, you can read up on the TFSA here. This account can be much more than a savings account.
Example: a 30-year-old working professional who starts investing their $5,500 (this year’s annual contribution limit) and continues maxing out their account contributions for the next 40 years could retire with a $1-million in the TFSA alone!
We work hard to maximize contributions to our TFSAs every year. We’ll continue to do so. If we keep doing this we’re optimistic our TFSAs will be worth over $100,000 each within the next 5 years.
- RRSPs are awesome tax-deferred growth machines
Registered Retirement Savings Plans (RRSPs) have been around for decades. The RRSP offers tax-deferred growth as long as you keep the account open and stay invested. There are more details about the RRSP to take advantage of here.
Example: taking our 30-year-old young professional again, he/she who starts saving $3,000 per year and contributes this amount every year to their RRSP without fail will likely find more than $250,000 inside their account at age 60.
We pay ourselves every month and contribute to our RRSPs, where we can, like clockwork. If we keep after it, and let time in the market be our friend, it’s possible our RRSPs could be worth over $500,000 at the time of retirement.
- Non-registered investing accounts provide some tax benefits thanks to the Dividend Tax Credit
Did you know you can earn about $50,000 per year in dividend income in Ontario, inside a non-registered account, and pay pretty much zero taxes on that income (if you have no other income to report)? For those that like math, check out this site for proof. This is thanks to the Canadian dividend tax credit, which you can read about here.
If you’ve been following my blog for any length of time you’ll know I’m a fan of Canadian companies that pay dividends. Dividends provide us with passive income, to cover future expenses. They could cover some current expenses today if we really wanted them to. However, we reinvest those dividends paid as much as possible. Read on about dividend reinvestment plans (DRIPs) here.
After both TFSAs are maxed out every year, and after we strive to max out our RRSPs, other money is invested if possible. We’re optimistic our non-registered assets will also grow in the coming years – so along with registered accounts – non-registered assets could put us close to our lofty $1 million portfolio goal.
I believe investing is largely a get wealthy eventually strategy. For us it is done through focusing on our TFSAs first, making regular contributions to our RRSPs second, and then investing where we can after that. Across all accounts we buy and hold investments, we reinvest dividends, and we stay the course. We believe with this slow and steady process will get us to our lofty $1 million portfolio goal. This blog is meant to keep you posted on that – so stay tuned.
What’s your take on this lofty $1 million portfolio goal? Out of reach? Is there luck involved? Drop me a comment and start the dialogue. Thanks for reading.