As we approach retirement, the focus shifts from accumulating wealth to ensuring financial flexibility. For many Canadians, the Tax-Free Savings Account (TFSA) becomes a crucial tool in this transition. But what does the typical TFSA balance look like for those on the cusp of retirement? And how can investors make the most of their accounts in the years leading up to this significant life stage?
The Reality of TFSA Balances
The numbers can be surprising. According to Canada Revenue Agency data, Canadians aged 55 to 59 held an average TFSA balance of approximately $37,600 in 2023. This figure increases to around $45,109 for those aged 60 to 64. These averages, however, can be misleading. Some Canadians are aggressive TFSA investors, while others prefer to hold cash or focus on other retirement vehicles like the Registered Retirement Savings Plan (RRSP).
The Role of ETFs in Retirement Planning
One strategy that can help investors make the most of their TFSA is the use of Exchange-Traded Funds (ETFs). For instance, the Middlefield Real Estate Dividend ETF (MREL) offers a unique combination of monthly income, real estate exposure, and diversification. MREL invests in global real estate companies across various sectors, including industrial, data centers, retail, healthcare, cell towers, office, and residential.
Why MREL Matters
What makes MREL particularly interesting is its potential to benefit from a shift in market dynamics. Real estate stocks have struggled while interest rates remained high, as higher rates made financing more expensive and pushed investors toward safer income options. However, if rates move lower over time, income-focused real estate investments could regain attention. For investors near retirement, this doesn't require a dramatic rebound; steady distributions, reasonable diversification, and the chance for capital recovery are more than sufficient.
The Numbers Speak for Themselves
MREL currently pays a monthly distribution of $0.075 per unit, which amounts to $0.90 annually, yielding about 6.8% at the time of writing. For someone with a $40,000 TFSA, this yield could produce roughly $2,700 in annual income before any price changes. Inside a TFSA, this income can arrive tax-free, making it especially useful for retirees managing taxable income, Old Age Security clawback concerns, or cash-flow needs.
Reinvesting for Long-Term Growth
The fund also offers a simple way to reinvest. Investors who don't need the income right away can use distributions to buy more units, keeping the TFSA working without forcing constant decisions. Then, closer to retirement, those same monthly payments can help cover smaller expenses without touching the principal too quickly.
Considerations and Risks
Of course, MREL carries risk. Real estate stocks can fall if rates stay higher, debt costs rise, property values weaken, or tenants struggle. The ETF also charges fees, with a management expense ratio (MER) around 1.1%, which is higher than that of a broad index fund. Investors need to decide whether the active real estate strategy and monthly income justify the cost.
Diversification is Key
Another risk involves concentration. MREL diversifies within real estate, but it still depends on one sector. A retiree shouldn't build an entire TFSA around it. Instead, it could fit beside broad-market ETFs, dividend-growth stocks, cash, or short-term fixed income. This combination can smooth out the ride while still leaving room for income and growth.
The Bottom Line
The TFSA numbers tell a clear story. Many Canadians near 60 don't have giant balances, which makes each investment choice more important. MREL offers income, diversification, and exposure to a sector that could improve if rate pressure eases. For Canadians reaching retirement, the goal isn't to chase the hottest stock; it's to build a TFSA that can pay, grow, and stay useful. MREL could help do exactly that, making retirement feel far less fragile.
