One of the major issues with a TFSA is also one of the best parts about it: freedom. You can withdraw or contribute at any time with zero hassle! No forms to fill out, no complicated tax issues to resolve, just stay within your contribution limit and that’s it. The problem with using a TFSA account as a retirement savings tool is that the majority of Canadians take advantage of this freedom too early by withdrawing from their TFSA to buy a new car, a new TV, a vacation or to cover credit card debts. Short term savings or emergency funds should be kept in a regular savings account at your bank and a TFSA should be used to generate long term growth.
The average user of a TFSA withdraws from it four times every year! To see the real magnitude of this, as of 2013, Canadians have already withdrawn $14.6B of the $40.1B contributed to TFSAs in the four years they’ve had access to the accounts. So, 36% of all contributions have been withdrawn but the average TFSA user has contributed $5,938 since 2009 and also withdrawn $4,939! The average TFSA user has withdrawn 83% of their total account value and they have completely negated the amazing benefits of the account.[footnote]Statistics Canada[/footnote]
At Enns & Baxter Wealth Management, we are very proud to say that our clients only withdrew approximately 2% of their TFSA contributions in 2015! These clients are being well served by their diligence because the benefits of a TFSA will only been seen if you invest your money for the long term and leave it alone until you need it in retirement. We would like to challenge all of our clients to not be like the average Canadian so their retirement can be anything but average.
*The information provided is general in nature, and should not be relied upon as a substitute for advice in any specific situation. For specific situations, advice should be obtained from the appropriate legal, accounting, tax or other professional advisors.