Financial Planning: Moving Beyond Emergencies

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Since the introduction of the Tax Free Savings Account (TFSA) in 2009, anyone 18 years of age or older at that time who has never contributed to a TFSA would be eligible to place up to $57,500 into one, beginning in 2018.

In my opinion, the last two words of the acronym have done a great disservice to the investment opportunities the TFSA represents: it is more than just a savings account.

Actually, TFSAs have the same investment options as RSPs.

Deciding on the appropriate investments for your TFSA follows the same process as other components of your portfolio: what asset mix will allow you to sleep at night and what might you need to draw from your portfolio in the next 3 to 5 years?

A liquid, high-interest daily savings account may be the best option for those using a TFSA to partly or fully fund emergency savings. But what is the appropriate level for an emergency fund? 3 to 6 months of income allows one to deal with interruptions in employment as well as financial emergencies.

A typical financial emergency may be to replace a gas furnace. The top-end list price for a furnace is $7,500 and with a TFSA daily savings of $57,500 you could purchase 7.6 furnaces!

The point is that if your TFSA holds too much in daily savings and/or short term deposits, you are not taking advantage of the longer term planning benefits a TFSA provides.

Consider retirement planning: a withdrawal from a TFSA is not taxed, whereas the full amount of an RSP or RIF withdrawal is added to your income. This makes a TFSA an ideal complement to your RSP, particularly when it comes to addressing lump sum needs in retirement.

If you do not require TFSA money for at least 7 years, a more balanced investment approach may be more profitable. A retirement savings may be more effectively accumulated through a TFSA in some situations.

How efficient is your TFSA? Talk to your Scrivens advisor about your plan and unlock the full potential of your TFSA.

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