The Power Of Compounding And Your TFSA
If you have contributed the maximum allowable amounts to your TFSA (and you were born in 1991 or before), that would amount to $57,500 over the last 10 years (i.e. since 2009). On average, just $5,750 per year (although there were varying allowable maximum contribution limits for different years). If you were able to get a 4.5% average annual return (after fees) over this period, you could very well have have something that resembles $70-75,000 in value there. The future value of a $5,700 per year contribution over 10 years with a rate of 4.5% = $73,194.72.
As in the chart above, if you contribute the max (at the moment) $5,500 per year over the next 10 years and are able to get that 4.5% annual return, the future value jumps to $184,295.64.
20 years (2038) = $356,831.98
30 years (2048) = $624,775.64
And for you younger folks (and this is why you start doing this as soon as you possibly can):
40 Years (2058) = $1,040,883.95
50 Years (2068) = $1,687,087.43
If you were born in 1991 (or before) and have not thought about a TFSA, you can still get started with any part of the so far maximum allowable $57,500 and jump into the compounding fray.
The numbers won't look quite as good as those above, but the future value of $57,500, with $5,500 per year ($458.33 per month) contributions at 4.5% per year is:
10 Years = $159,922.23
20 Years = $318,980.81
30 Years = $565,993.93
40 Years = $949,597.74
50 Years = $1,545,322.74
Parents, teachers, mentors it is a fantastic way to encourage your charges to build wealth. Wealth that will grow and compound without the imposition of any taxes, which is why the longer you have it in your TFSA, the greater the growth will be.
When we do our client Wealth Forecasts, the TFSA becomes the best growing account in the plan over time, for that very reason.
Make a plan, stick to the plan and away you go.
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