Lessons from your fellow Canadians on how to be successful with TFSAs

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The greatest Canadian personal finance success story of this century so far is the rise of the tax-free savings account.

The country’s 19.5 million individual TFSAs had a total fair market value of $277-billion as of 2017, up an impressive 19 per cent over the previous year. Personal finance discussions do tend to harp on about negatives such as high debt levels and overspending. But the TFSA is something that has gone massively right. Introduced in 2009, TFSAs are used by more than 14 million people.

The Canada Revenue Agency’s 2017 TFSA numbers, the most recent available, are full of useful insights on achieving success with TFSAs. Let’s take a look at a few of them:

Just start a TFSA

If you set up a TFSA, you will very likely contribute to it. Fifty-eight per cent of TFSA holders over all contributed to their accounts, but younger TFSA holders were particularly likely to make contributions. Just more than two-thirds of people between the ages of 20 and 24 made a contribution, as did 63 per cent of people 25 to 29 and almost 60 per cent of people 30 to 34.

Need a ready-made TFSA option that doesn’t require you to do a lot of preparatory work? If you want to invest for the long term in a TFSA, say five to 10 years or more, try a robo-adviser. For a savings TFSA – money you want to keep safe for near-term uses like a house down payment – try a high interest savings account. Rates on TFSA savings accounts were as high as 2.4 per cent in early December.

Don’t get hung up on contributing the maximum

Look, very few people max out their TFSAs. The overall percentage of TFSA holders who did so was just 10 per cent; among those 20 to 39, only about 3 per cent or so were able to max out. Even people in their peak earning years have trouble reaching the maximum – just 12.5 per cent of those 55 to 59, for example. It’s no surprise, then, that the average amount of unused TFSA room was almost $31,000.

For those who have yet to contribute to a TFSA, total accumulated contribution room through 2019 was $63,500, far more than the average fair market value of TFSAs for any age group. For all age groups, the national average fair market value was $19,633. People at the age of 75 and older had the biggest TFSAs – the average value was $36,326.

Feeling inadequate because you haven’t a hope of reaching the maximum $6,000 contribution for 2020? Forget it – most of Canada is in your position.

Contribute early, contribute often

Young adults are TFSA contribution machines. The average TFSA holder between 25 and 29 made 24 contributions in 2017, which compares with the national average of 14.4. Older people contributed much less often – just under 10 times for people aged 60 to 64, for example.

The frequency of contributions for younger people suggests they’re using pre-authorized contribution (PAC) plans or at least electronically moving money from their chequing accounts to their TFSAs on a regular basis. PAC plans are best because they make TFSA contributions non-discretionary, but developing a habit of regularly moving money into your TFSA is also praiseworthy.

It’s normal to ease off on TFSA contributions in your child-raising years

The CRA numbers suggest it gets harder to find the money to make a TFSA contribution as you enter your 30s and early 40s, and then money frees up again in your later 40s and 50s. This cycle of contributions is no big deal, especially if you’re a TFSA keener in your 20s.

Keep in mind that TFSA contribution room is never lost – you can always backfill unused room later on.

Take money out, but put more in

The average dollar amount of TFSA contribution and withdrawal were near identical – $7,503 versus $7,140, respectively. But there were far more contributions than withdrawals nationally and across all age groups.

The average number of withdrawals nationally was 4.9, compared with 14.5 contributions. Only at the age of 75 and up is the number of withdrawals close to the number of contributions.

TFSAs are an all-ages product

Pick most any age group and you’ll find a stat documenting a commitment to TFSAs. Somehow, 84 per cent of the TFSA holders at 18 (the minimum TFSA age) and 19 managed to maximize their contributions. Parental or grandparental help, maybe? People at the age of 75 put far and away the most into TFSAs in total, though they also led on withdrawals.

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