Squandered

There are just over 35 million adults in Canada. And they have more than 28 million open TFSAs.

Yay, gang! Well done. Anybody moaning about Canadians being financial illiterates, two hundred bucks a month from insolvency or headed for a retirement of munching on cat chow can go pound salt. We are awash in tax-sheltered savings accounts!

But wait.

Government stats may be telling another tale. Those 28 million TFSAs are held by 17.7 million people, suggesting a bunch of orphaned accounts may be wandering the land. And 182,000 of these tax-free accounts are actually owned by dead people.

We also know eight million of all account holders (about half the total) contributed nothing recently. In fact more than 14 million open TFSAs had no transactions of any kind in the latest reporting year. And, whoops, 4.86 million people who have open accounts took money out, instead of inserting savings. Another 1.5 million cashed out completely.

So how many people did teh smart thing and put in the allowable max of seven grand?

The total was 1.53 million, or 8%. The other 92%, say the feds, contributed a lesser amount, withdrew funds, closed their accounts or put in nothing at all. Or died.

Here’s the scorecard:

Source: Statistics Canada, Department of Finance

Well, maybe we suck after all. Or perhaps a lot of people think the TFSA is just a slush fund for a new pair of Fluevogs, a trip to Cuba or some Brizo faucets. In other words, they squander this awesome little tax shelter – and will likely pay the price in years to come.

Remember how this works. You get to chunk in cash annually, grow it completely free of tax within the account, and then withdraw it down the road as income without paying any tax upon removal. A major benefit is that the growth and income enjoyed isn’t counted as taxable income. Therefore it won’t result in any clawback of government retirement benefits like CPP or that wrinkly pogey known as OAS.

For example, a fully-invested TFSA today (with $109,000 contributed to it since inception in 2009), maxed yearly at seven grand and earning an average of 6% turns into $880,000 in 25 years. That throws off about $53,000 in annual income without diminishing the principal. Add in average CPP (currently $848/month) and OAS (now $740/month) and the basically tax-free income is $72,000. Not princely. Not poverty. And if your squeeze gets the same, decidedly middle-class.

Ottawa just confirmed the annual contribution will be the same this year as last – $7,000. Those who have put in the max, investing in a basket of ETFs for the past 16 years may have a few hundred thousand already in play. If they keep it up, the future will be so much more comfortable. Of course in addition to this, there are massive amounts available for earned RRSP contributions, plus those weird new FHSAs, as well as RESPs or RDSPs for the kiddos.

Also remember you can open a TFSA for your spouse or adult kids, fund it yourself and have no attribution for tax purposes. You can take money out of a TFSA and (unlike with an RRSP) stick it all back in the following calendar year. The funds inside the plan can be invested in almost anything for growth. You can make a TFSA contribution by using assets you already own (a ‘contribution in kind’). And these accounts can be beefed up years before retirement in order to fund living expenses, tax-free, while keeping savings in an RRSP and your marginal tax rate low.

Yes, we learned the lesson that TFSAs are good. We should all have one. Check.

Now fill the damn thing.

About the picture: “I’m responding to your request for dog photos,” writes Gail, (originally from Ontario). “This is Mabel who enjoys a pampered life in the UK. She loves belly rubs and charming anyone she meets with her big beautiful eyes. I’ve been following your newspaper articles and blog for years. You have changed our financial wellbeing in ways I never thought possible, for which I am forever grateful!”

To be in touch or send a picture of your beast, email to ‘garth@garth.ca’.

Source: https://www.greaterfool.ca/2025/10/06/squandered-3/