In order for you tax-free retirement revenue of roughly $40,000 a 12 months, you want near $1 million sitting in your TFSA (Tax-Free Financial savings Account). A low-cost solution to generate passive revenue is by investing in high-dividend-paying exchange-traded funds. One prime dividend exchange-traded fund (ETF) is Vanguard FTSE Canadian Excessive Dividend Yield Index ETF (TSX:VDY), which provides a yield of three.3% in Could 2026.
Retirement planning can really feel imprecise till you connect an actual greenback determine to it. It additionally forces you to be sincere in regards to the trade-offs, resembling spending rather less now, working a pair additional years, or taking over a bit extra market danger than feels comfy.
The TFSA is likely one of the strongest instruments in a Canadian investor’s toolkit, and most of the people are usually not utilizing it to its full potential.
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The maths behind your TFSA retirement quantity
Begin with the revenue hole. So, work out the annual after-tax revenue you need in retirement, then subtract what you anticipate from the Canada Pension Plan (CPP), Outdated Age Safety (OAS), office pensions, and another revenue sources. No matter is left over is what your TFSA must cowl every year.
Then convert the annual revenue hole right into a portfolio dimension utilizing the 4% withdrawal rule. Right here, it’s essential to divide your yearly TFSA revenue goal by 0.04.
In order for you $24,000 in tax-free revenue every year, your TFSA stability needs to be round $600,000. In case your annual revenue requirement will increase to $36,000, the TFSA stability for retirees will rise to $900,000.
Notably, the quantity withdrawn from the TFSA is tax-free and doesn’t influence your OAS or Assured Revenue Complement (GIS) eligibility.
Based on a current BMO survey, Canadians now estimate they want about $1.7 million to retire comfortably. Your TFSA in all probability received’t cowl all of that by itself, however it may do numerous heavy lifting, particularly whenever you pair it with CPP, OAS, and another financial savings you may have.
Why the VDY ETF belongs in your TFSA
The VDY ETF tracks the FTSE Canada Excessive Dividend Yield Index, a market-cap-weighted index constructed round Canadian corporations that pay above-average dividends.
The ETF holds 61 shares throughout the financials, vitality, utilities, and telecom sectors. Its prime 10 holdings, together with Royal Financial institution of Canada, Toronto-Dominion Financial institution, Enbridge, and Canadian Pure Assets, make up about 67% of the fund. These corporations are among the many most established dividend payers within the nation.
VDY’s administration expense ratio is simply 0.22%, which implies extra of your cash stays invested and compounding over time.
VDY delivered a one-year internet asset worth return of 41.16%, a three-year annualized return of twenty-two.79%, and a five-year annualized return of 17.39% as at March 31, 2026.
Since its inception in November 2012, the fund has returned 12% yearly. 12 months-end calendar returns from 2021 to 2025 present a 36.73% acquire, a near-flat 2022, an 8.36% acquire in 2023, a 21.40% acquire in 2024, and a 30.92% acquire in 2025.
Distributions are paid month-to-month, which is good for income-seeking retirees. VDY additionally carefully mirrors its benchmark, with a monitoring error of simply 0.08% and a beta of 1.00.
The Silly takeaway
The 2026 TFSA contribution restrict is $7,000. In case you have been eligible since 2009 and by no means contributed, you now have as much as $109,000 in complete contribution room obtainable (with the up to date cumulative restrict as of 2026). And if you happen to make investments it properly in one thing like VDY, compounding will do the heavy lifting over time.
Specialists typically counsel aiming for retirement revenue equal to about 70% of your pre-retirement earnings. On a $100,000 wage, that’s $70,000 a 12 months.
With a 30-year retirement and 5% annual returns, you’d must accumulate roughly $1 million to maintain that way of life comfortably.
Somebody with a less complicated way of life and a full CPP cost would possibly want far much less. An enormous spender with no pension would possibly want extra. However the framework is similar for all of us: know your revenue hole, choose a withdrawal price, and construct towards a quantity you possibly can revisit every year.
The TFSA is constructed completely for that job. And VDY is likely one of the finest methods to place it to work.
