## Canadian Tax Free Savings Account

The Canadian Tax Free Savings Account (TFSA) is one of the most significant tools that a Federal Canadian government ever devised for all Canadians in planning their retirement. It is a special account set up with a Canadian Bank that currently allows one to deposit any amount of money up to a maximum of \$5,500 per year. Inside that special account and you can invest (buy and sell) any financial vehicle you want. You can purchase stocks, bonds, mutual funds ect, in other words, anything and in any combination that will appreciate and its all tax free, when part of the money or all of it is withdrawn. The current limit to deposit is \$5500 per year.

Assume you wanted to put \$5500 away each year for 40 years and you aimed at getting a conservatively speaking. 3% annual compounded rate of return on that money from your various purchases of stocks and bonds , ect. How much would that accumulate to or grow to (appreciate) at the end of 40 years?

Using the algebraic formula:

The future value (FV) or your accumulation for retirement after 40 years would be \$414,707.

PROBLEM:
Most people would find it difficult and time consuming to utilize this formula or even have a Financial Calculator and the expertise that would allow them to easily and quickly perform the calculation.

SOLUTION:
The MORTGAGE2 PRO software will allow you to generate a negative amortization schedule which is a unique way of having a grid of sinking fund calculations.

Run the program (see screenshot 2), then change the default calculator values in the green calculator portion at the top of the screen to one payment per year and the compounding to annual compounding. Change the interest rate to 3%, press the Tab key, change the amortization period to 40 years, press the Tab key change the payment to 5500. Now using the mouse left click on the word Principal (the prompt in front of that calculator input box) and the value in the box will change to 127,131.25 (that is the PV, present value .. but more on that later).

You now have a blended payment amortization schedule below the calculator is in a spread sheet format (grid). Using the mouse click on the first payment box in the SPREADSHEET (Grid), it turns yellow, type in 0 and press Enter or Tab. Now copy the value of Zero all the way down to payment 40. In the balance column you will see a value of \$414,706.94 This is the future value of \$5500 each year growing at 3% compounded annually for 40 years. This is called the Future Value, FV. The PF/FV window overlapping the Grid is merely to show that a single calculation is also possible and yields the same numbers. However the value of the Grid of FVs is that you can change the interest rate (growth) for each and every one of the forty years to reflect reality. Doing these calculations manually would be time consuming and prone to error.

Changing various yields in the FV Grid (SPREADSHEET) during the 40 years is easily and QUICKLY achieved and the FV at 40 years is obtained. The FV via a single calculation for all of the yearly changes would be impossible to calculate. Your only option is to do up to forty different calculations and would be very time consuming.