ETF: Wealth for three generations in one tax-free account

In ETF Blog, Latest by Kristia van Heerden

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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