The $3 Million TFSA Retirement Strategy
- Michael Isbister CFP
- May 27
- 6 min read
Hello everyone, and welcome to the Retiring Canada Podcast!
In today’s episode, we’re going to discuss how to optimize your TFSA account for the long term.
Specifically, we’ll cover:
- The first step to optimizing your TFSA
- The blanket approach to investment decisions
- A balanced investor’s TFSA growth from 2009 to today
- The impact of changing your plan over the next 30 years
- Four decisions that could ruin your TFSA
-And finally, a few action items for you to consider
As a Certified Financial Planner and Senior Investment Advisor, I’ve had the privilege of reviewing and optimizing hundreds of retirement plans for families across Canada. From investments and retirement income to tax, health care, and estate planning, we’ve streamlined our process to provide massive value that far exceeds the fees we charge.
We call this process the Fundamental Retirement Plan, and I encourage you to learn more by visiting our website.
Stay tuned, because in the future, we’ll release a 5-part series highlighting the FRP process and breaking down each of the key areas we focus on.
One thing I’ve learned over the years is that all these planning areas are interconnected.
The decisions we make at the investment level will impact our retirement income plan, our tax plan, and beyond. Every decision affects the entire FRP, so it’s crucial to understand, control, and monitor every aspect of your financial life.
A common theme we see in this process is the misuse of the Tax-Free Savings Account — the TFSA.
Some TFSA accounts are very conservative — sitting entirely in cash or high-interest savings accounts. But more often, we see TFSA accounts invested in a balanced mix: 60% equity and 40% fixed income, the classic “balanced portfolio.”
At first glance, this might seem perfectly reasonable. But I’d argue it’s suboptimal — especially for retirement investors with investable assets over $1 million. Hear me out.
Let’s imagine a scenario: while going through the Fundamental Retirement Plan, we create a withdrawal strategy that includes drawing down on your RRSP, RRIF, and pension accounts. We optimize your Canada Pension Plan and Old Age Security, and we create a retirement income safety net within your non-registered accounts, carefully designing a globally diversified basket of investments.
In doing this, we might discover that, based on the withdrawal strategy and your overall income and tax plan, your TFSA will likely never be accessed for retirement income needs.
So, knowing this — how should your TFSA be invested?
Of course, we always factor in risk tolerance, risk capacity, time horizon, and financial literacy when determining a suitable investment strategy for each client.
That said, if you understand how you’re invested, use conservative estimates in your retirement plan, and everything makes sense in plain English, I would argue that retirement investors should consider more equity exposure in the TFSA.
Why?
Because if, through a conservative planning process, we discover that the TFSA will likely never be needed for retirement income, does it make more sense to stick with a balanced 60/40 portfolio, or to go 100% equity?
I often see blanket allocations of 60/40 or even 80/20 across all accounts, regardless of the expected timeline for those funds.
Now, I’m not saying you should rush out and rebalance your TFSA accounts today. I don’t know you, your family, or your finances — so please do your own due diligence or reach out to our team by visiting our website.
But the reason I’m making a fuss about this is because how your TFSA is invested can have an enormous impact on its future value.
Let’s work through an example. Imagine that when the TFSA was created in 2009, you added the maximum amount each January 1st.
We’ll use the return history of Dimensional Funds’ 60/40 portfolio and Global Equity portfolio:
-Dimensional 60/40 Portfolio (since 2011): 6.79% annualized net of fees
-Dimensional Global Equity Portfolio (since 2011): 9.67% annualized net of fees
You can check out these portfolios by clicking the links in the episode description.
If we apply these returns to a TFSA that was maximized each year from 2009 to the end of 2025:
-For the balanced investor (6.79% return), the TFSA would be worth approximately $189,000 by December 2025.
-For the 100% equity investor (9.67% return), the TFSA would be worth around $249,000.
That’s a massive $60,000 difference in account value, thanks to the power of consistency and compounding.
So, what’s your TFSA balance today?
Is it close to that balanced investor number of $189,000? Probably not.
There are many reasons for this, like:
- High-fee mutual funds
- Suboptimal stock-picking portfolios
- Not topping up the TFSA at the start of each year
- Or just catching up later because of other cash flow needs
And hey, I get it — hindsight is 20/20. Financial planning best-case scenarios rarely play out perfectly.
You might hear me talk about these TFSA numbers and think, “Mine’s only $130,000… I really missed out.” But not all is lost.
If you’re 55 or 60 today, you still have another 20, 30, or even 40 years of TFSA contributions and growth ahead of you. There’s still time, and making a change now can make a massive difference.
Let’s say your TFSA is around $130,000 today, and you contribute the current yearly maximum of $7,000 every January 1st for the next 30 years. For simplicity, we’ll assume the contribution limit never increases.
-Scenario 1: You stay balanced (60/40) with an annualized return of 6.79%. After 30 years, your TFSA would be worth approximately $1.6 million — tax-free.
-Scenario 2: You invest 100% in equities (9.67% annualized return). After 30 years, your TFSA would be worth over $3.25 million — tax-free.
That’s more than double the value compared to the balanced investor — and it doesn’t even factor in possible increases to contribution limits or if both you and your spouse have TFSAs.
This is why Warren Buffett famously called compound returns the “eighth wonder of the world.”
Now, I know you might question those return rates. I get it — these are historical returns you can look up for yourself. And yes, past performance does not guarantee future results.
Still, there are several other decisions that can seriously hamper your long-term TFSA growth:
High-fee mutual funds: These fees directly eat into your long-term growth, so always know what you’re paying.
Suboptimal investment choices: Stock-picking or active fund managers promising outperformance rarely work out over the long run.
Poor investor behaviour: Selling to cash during market volatility, treating the TFSA like a short-term savings account, buying speculative penny stocks, or simply not understanding how TFSA decisions impact your retirement plan.
Working with an advisor who doesn’t provide real value: In my world, the advice business, it’s my privilege and duty to be the custodian of your financial life — and the advice I provide must far outweigh the advisory fee you pay.
Think about it: if the Fundamental Retirement Plan helps you fully invest your TFSA and that results in an extra $1 million in your future TFSA value, how much would you pay for that advice?
That’s why we created the FRP process. If you’ve been thinking about connecting with us to see what we can do for you, I encourage you to reach out today. Your TFSA will thank you in the future!
Whether you’re a DIY investor or working with an advisor, remember: the decisions you make about your TFSA should never exist in a vacuum. Do your own due diligence when choosing investments, an advisor, or any financial decision, really.
At the end of the day, we’re all a product of the decisions we make. And in my opinion, the TFSA is the most valuable account available to Canadian investors. The government has handed you a rare gift — the only catch is, they didn’t give us a manual on how to maximize its value.
Understanding how your decisions can result in a million-dollar difference in your TFSA over a 30-year retirement horizon is critical.
So, here are your action items for today’s episode:
If you don’t have a retirement plan that gives you the confidence you won’t run out of money or that you won’t under-live your life — you know what to do!
Crack open an investment statement. If you’re a balanced investor, is that allocation the same across all your accounts (TFSA, RRSP, RRIF, non-registered)? If so, that may be fine. But if you’re spending modestly and have retirement assets north of $1 million, you might be missing out on an opportunity to maximize your wealth.
Alright, that’s it for today’s episode!
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All comments are of a general nature and should not be relied upon as individual advice. The views and opinions expressed in this commentary may not necessarily reflect those of Harbourfront Wealth Management. While every attempt is made to ensure accuracy, facts and figures are not guaranteed, the content is not intended to be a substitute for professional investing or tax advice. Please seek advice from your accountant regarding anything raised in the content of the podcast regarding your Individual tax situation. Always seek the advice of your financial advisor or other qualified financial service provider with any questions you may have regarding your investment planning.