How to Use Your TFSA in Retirement

Adam Bornn explains why the TFSA can be one of the most flexible tools in retirement planning.

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Talk to us about the TFSA and why it’s such an important tool in retirement in terms of the flexibility it provides.

Yeah, so the Tax-Free Savings Account we call a lever account. And so that’s really… If you think about a lever, it’s a push-and-pull thing. So in years where you need a little bit more money, right? You talk about the go-go years. Not that you’re depleting a TFSA in go-go years by any means, but a year where you need a little bit more money or you have an emergency, you could pull money from the TFSA account and not drive up that tax bill.

Again, keeping that tax bill very level. In years where you don’t need extra money, you can put it back in there or leave it in there. So when you look at, you know, a 10-year period of a retiree from, say, 65 to 75, let’s say traveling is important to them. They’re typically not spending the same, say, you know, $15,000, $20,000, $30,000 a year on travel.

It’s gonna be higher years and lower years. So to kind of buffer that to make sure your tax bill doesn’t kind of ride that wave as well, the Tax-Free Savings Account is a great tool because you might be pulling more out of your RRIF than you actually need to spend is for next year travel. So you can take that money, you know, top up your TFSA, keep your tax bill level, but then you can kind of swing your income up and down a little bit year to year, um, and just make it more efficient.

So yeah, Tax-Free Savings Account’s a very, very important tool just because you can pull money out of there on a tax-free basis. And again, especially early years, most Canadians don’t really know what they’re gonna spend in retirement. They might have a general idea, but no one knows exactly what we’re going to spend.

So again, it’s like, “Oh yeah, I am spending a little bit more. Okay, I’ll pull from the tax-free savings. I’ll readjust my plan and move forward from there.” So it does create a lot of flexibility.