It is obvious that personal finance is “personal”. Everyone’s situation is different and factors such as family size, career progression, location, lifestyle, etc. all influence retirement planning.

Having said that, I was curious about a simple question:

Can the average Canadian retire comfortably by consistently maxing out their TFSA and RRSP?

To keep the Math simple, let’s make a few assumptions.

Suppose you are

• Single
• Living in Ontario
• Earning the median income of $55,000 per year (based on Statistics Canada data)

We are ignoring many “life” variables like promotions, inflation, salary growth, CPP/OAS benefits, pensions, tax implications, changes in TFSA/RRSP rooms, etc. We are trying to get a rough idea of what consistent saving and investment can achieve.

Annual Contributions

Suppose the following annual contribution limits:

• TFSA contribution room: $\$6,500$
• RRSP contribution room: $18\% \times \$55,000 = \$9,900$
• Total Annual Investment: $\$6,500 + \$55,000 = \$16,400$

This works to about $\frac{\$16,400}{12} = \$1,366$ per month

Compounding Investment

Now suppose you:

• Invest $1,366 every month
• Earn an average annual return of 6%
• Continue investing for 25 years
• Start with no initial investment

Using the future value formula for monthly contributions

$$FV=P(1+\frac{n}{r})^{nt}+PMT\times \frac{(1+\frac{r}{n})^{nt}-1}{\frac{r}{n}}$$

Where:

• FV = future value (total amount)
• P = initial investment
• PMT = monthly contribution
• r = annual interest rate (0.06)
• n = number of compounding periods per year (12 for monthly)
• t = total number of years

Substituting the values:

$$FV=0+\$1366\times \frac{(1+\frac{0.06}{12})^{12(25)}-1}{\frac{0.06}{12}} \\\approx\$946,630$$

gives the approximate final portfolio value of $\$946,630$.

During those 25 years, you would have personally contributed:

$$\$1366\times 12 \times 25 = \$409,800$$

The remaining $537,000 comes from investment growth through compounding.

Retirement Income

A commonly guideline is the 4% withdrawal rule, which suggests that withdrawing roughly 4% of your portfolio annually has historically provided a high probability of your savings lasting around 30 years.

Applying that rule:

$4\%\times\$946,630=\$37,865$ per year

or approximately $\$3,155$ per month.

Comfortability

Is $37,865 a year a comfortable spending money? It depends.

For me personally, $3,155 per month would not be particularly comfortable retirement income. However, for someone whom has a paid-off home, modest living expenses, and inexpensive hobbies may find that amount to be sufficient.

It is also worth remembering that this example is intentionally conservative and leaves out many factors that would likely improve the outcome:

• Most people’s incomes increase throughout their careers, creating additional RRSP contribution room.
• TFSA contribution limits generally increase over time. (maybe)
• Many Canadians receive CPP and OAS benefits in retirement.
• Some people have employer pensions or other investments
• Other may work longer than 25 years before retiring.

On the other hand, inflation, taxes, market volatility, healthcare costs, and unexpected life events can reduce purchasing power or require larger retirement savings.

Here is a simple calculator you can play around to see your potential investment growth based on the formula above.

Final Thoughts

Consistently maxing out your TFSA and RRSP is one of the best financial habits you can develop and doing so will certainly help put you in a much stronger position than the average Canadian.

However, maxing out those accounts alone does not guarantee a “comfortable” retirement, because comfort is highly subjective and depends on your desired lifestyle. For some people, the resulting retirement income will be more than enough. For other, it is not.

Another key takeaway is that saving early, investing consistently and increasing your income over time are far more important than trying to hit a single retirement number. The earlier you start, the more you can invest as your career progresses, and the greater benefits of the long-term compounding return.