We often talk about the impact of time on your investments. As Stealthy Wealth illustrated, a single tax-free account (TFSA) maxed out over 15 years can set you right for retirement if you give it time. Imagine what a tax-free investment can do over the course of a few generations.
The below email from One Lapper Sean shows exactly how you can ensure your great-grandchildren will never have to worry about retirement.
“A tax-free account started at birth can create generational wealth. You can set up your children to never have to worry about retirement, regardless of their job. Ideally, if they pay it forward to their kids by saving R500,000 per kid, their kids can retire at age 38.
Just try your absolute best to educate them on the value of TFSAs and retirement. You have 18 years to get it done before they can take control of their TFSA.
Here are the numbers:
start TFSA at 1 4% rule monthly income @65 Years until 25k per month Years until 50k per month Years until 75k per month Years until 100k per month Years until 125k per month inflation plus rate Value at 65 +6% 15 089 669 50 299 54 65 dead dead dead +7% 26 284 673 87 616 47 56 63 dead dead +8% 45 621 261 152 071 42 51 56 60 63 +9% 78 901 668 263 006 38 46 51 54 57
Start TFSA at 21 4% rule monthly income @65 Years until 25k per month Years until 50k per month Years until 75k per month Years until 100k per month Years until 125k per month inflation plus rate Value at 65 +6% 4 705 030 15 683 dead dead dead dead dead +7% 6 792 459 22 642 dead dead dead dead dead +8% 9 787 960 32 627 62 dead dead dead dead +9% 14 078 495 46 928 58 dead dead dead dead I know TFSAs aren’t and shouldn’t be viewed as vehicles for things like education, but as a pay-it-forward vehicle, it’s pretty magical.
I realise that my thinking ignores the concept of lasting wealth, but if I take that into account (one kid per person paid TFSA from the original TFSA), the results are still amazing:
generational 4% rule monthly income @65 Years until 25k per month Years until 50k per month Years until 75k per month Years until 100k per month Years until 125k per month inflation plus rate Value at 65 +6% 11 772 809 39 243 58 dead dead dead dead +7% 21 758 571 72 529 50 60 dead dead dead +8% 39 453 186 131 511 44 53 58 62 65 +9% 70 507 122 235 024 39 48 52 56 58 TFSAs allow us to create ongoing generational wealth, especially since we’ve ignored inheritance of the capital amount, in two generations.
*Dead is older than 65.
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