How to Turn $6,500 Into $779,410 by the Time You Retire

You can turn annual contributions into a big nest egg with Aristocrats Index ETF (TSX:CDZ).

| More on:
grow money, wealth build

Image source: Getty Images

It’s never too late to start saving for retirement. I believe you can build a sizable nest egg, even if you’re older than half of all Canadians and have never saved before. Here’s how the average Canadian saver can turn a newly opened savings account into a six-figure cash cushion within 30 years. 

Bare minimum strategy

I believe doing the bare minimum is enough to secure your financial future. That means adopting a simple strategy of maximizing savings, using government savings programs, and investing in a plain-vanilla index fund. 

The first step is to maximize your Tax-Free Savings Account (TFSA). The average TFSA balance in 2022 is $32,234 while the maximum aggregate contribution room is $81,500. However, you can launch a new TFSA in 2023 and make your first contribution of $6,500 to get started if you haven’t already done so. 

Adding $6,500 every year to this account should help propel your savings. Meanwhile, you don’t need to pick specific stocks or funds every year. You can simply invest in a traditional TSX index fund such as the iShares S&P/TSX 60 Index ETF (TSX:XIU). This fund tracks the 60 largest companies in Canada and has delivered a compounded annual growth rate of 7.5% since inception. 

If you’re 41 years old or more, you’re older than half of all Canadians. That means you have 24 years before retirement. Investing your TFSA in an index fund over this period could turn $6,500 in annual contributions into $779,410 by the time you’re over 70. 

That’s more than the value of an average home and nearly a million dollars! That’s enough to survive on. 

Dividend-growth strategy

If you’re looking for a more aggressive approach to saving for retirement, a dividend-growth plan could be better. Several Canadian companies offer steady growth in earnings and stock price and a reasonable dividend yield. If you reinvest the dividends to buy more stocks every year you can accelerate your investments. 

iShares S&P/TSX Canadian Dividend Aristocrats Index ETF (TSX:CDZ) tracks several top Canadian companies that have expanded dividends consistently for years. These are usually heavyweights in the financial, banking, energy, or telecommunications sectors. 

The fund has delivered a 6.74% CAGR since inception and currently offers a 4.3% dividend yield. Assuming dividends grow by an average of 6% every year and you adopt a dividend-reinvestment plan (DRIP), you could turn $6,500 in annual contributions into $1,246,809 within 30 years. 

Put simply, you could go from no savings to a millionaire retiree with this simple plan. 

Bottom line

Your retirement plan doesn’t need to be complicated. Doing the bare minimum should help you accumulate $779,410 in your TFSA. Investing in a Dividend Aristocrat fund and reinvesting dividends aggressively could expand that to $1.2 million. 

It’s never too late. Get started!

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Vishesh Raisinghani has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

More on Investing

Canadian Dollars bills
Dividend Stocks

3 Monthly-Paying Dividend Stocks to Boost Your Passive Income

Given their healthy cash flows and high yields, these three monthly-paying dividend stocks could boost your passive income.

Read more »

ways to boost income
Investing

Are Telus and BCE Stocks a Smart Buy for Canadian Investors?

Telus (TSX:T) and BCE (TSX:BCE) have massive dividend yields, but their shares have been quite sluggish!

Read more »

investment research
Tech Stocks

Is OpenText Stock a Buy, Sell, or Hold for 2025?

Is OpenText stock poised for a 2025 comeback? AI ambitions, a 3.8% yield, and cash flow power make it a…

Read more »

Make a choice, path to success, sign
Dividend Stocks

The TFSA Blueprint to Generate $3,695.48 in Yearly Passive Income

The blueprint to generate yearly passive income in a TFSA is to maximize the contribution limits.

Read more »

The virtual button with the letters AI in a circle hovering above a keyboard, about to be clicked by a cursor.
Tech Stocks

Emerging Canadian AI Companies With Big Potential

These tech stocks are paving the way to an AI-filled future, but still offer enough growth ahead for a strong…

Read more »

Young Boy with Jet Pack Dreams of Flying
Tech Stocks

Is Constellation Software Stock a Buy, Sell, or Hold for 2025?

CSU stock has long been a strong option for high growth, high value stocks. But are there now too many…

Read more »

rising arrow with flames
Investing

2 Riskier Stocks With High Potential for Canadian Investors in November

Risky stocks such as Well Health Technologies have the potential to provide life-changing long-term returns.

Read more »

hand stacks coins
Dividend Stocks

3 Ultra-High-Yield Dividend Stocks You Can Buy and Hold for a Decade

These three high-yield dividend stocks still have some work to do, but each are in steady areas that are only…

Read more »