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Using a TFSA Depends on Your Age

Investment planning is typically modified through the course of an investor’s lifetime, as their investment goals and time frames change. During your 20’s, your investment goals are typically different than they are in your 30’s and so on. With the new TFSA becoming available in 2009, it is important to understand how many investors plan to utilize this account for their financial futures.

TFSAs in your 20’s

Many 20 year olds are in the beginning stages of their financial lives. This decade is often filled with college graduation, new homes, new vehicles, marriages and potentially the beginnings of a family life with the birth of children. So, how does a 20 something use the TFSA to meet their financial needs? Most individuals within this age bracket are planning to use the TFSA for 2 primary purposes; as a tax free short term savings account, and as a seed for their future retirement plans. So, some money will be redirected into these TFSA accounts to fund the short term goals while the funds that are unused during the short term will be left to compound for retirement.

TFSAs in your 30’s

If someone during their 30’s has not yet purchased a home, vehicle or has not started to save for their children’s education, these are the primary short term purposes for saving into a TFSA. Towards the latter part of someone’s 30’s, they are often focused on the accumulation of wealth. During the wealth accumulation stage, many individuals will be trying to back fill their TFSA accounts. Any withdrawals that have been made and any room that is left within the TFSA accounts should be filled when financially possible. The ability to take advantage of both tax deferred growth and tax free withdrawals during retirement is a tremendous advantage that should be taken advantage of, especially during the peak earning years of a 30 something year old.

TFSAs in your 40’s

Many financially savvy individuals have the goal to retire during their 50’s, so the decade before is the time frame where many begin to focus on the accumulation of wealth. And, most individuals in their 40’s have already accomplished many of the traditional financial goals such as building a cash reserve, buying a home, purchasing vehicles and sending their children to college. So, the 40’s is the time frame where individuals will begin to maximize their contributions into their TFSA accounts for retirement.

In addition to taking advantage of the full annual contribution amounts,¬†individuals will be re-contributing funds that they have withdrawn as well as any room that was not utilized during their 20’s and 30’s. The funds that are invested into the TFSA accounts are a great compliment to pensions and the RRSP accounts when creating an income stream during retirement.

So, no matter what age bracket you currently fall into, the TFSA is a useful financial tool.

This entry was posted on Friday, June 12th, 2009 at 8:17 am and is filed under Advice. You can follow any responses to this entry through the RSS 2.0 feed. Responses are currently closed, but you can trackback from your own site.

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