By the time Canadians reach 40, the average Tax-Free Savings Account (TFSA) balance sits at about $17,062. Meanwhile, the average Registered Retirement Savings Plan (RRSP) holds around $103,000. While these figures are commendable, they may fall short of what's needed for a financially secure retirement.

What to consider

Rising costs of living, inflation, and the unpredictability of healthcare expenses mean that these savings may not stretch as far as one might hope. Financial planners typically suggest having the equivalent of three times your annual salary saved by this age. For Canadians aged 35 to 44, whose average income is $65,800, that's about $197,400. Comparing this benchmark to the combined average of TFSAs and RRSPs shows that many individuals are falling short of this goal.

This savings gap isn't a cause for panic but rather a nudge to explore better strategies for growing wealth. One powerful method is passive income investing, whereby your money works for you by generating returns with little hands-on effort. Passive income strategies, such as investing in dividend-paying stocks, allow investors to create steady cash flow while also growing their portfolio value over time. Reinvesting the dividends creates a compounding effect, significantly boosting savings and narrowing the gap toward retirement goals.

Consider Waste Connections

A prime example of a passive income stock is Waste Connections (TSX:WCN). This waste management company is not only an essential service provider but also a strong performer in the market. Waste management has proven to be a recession-resistant industry, thus making WCN an attractive choice for investors seeking stable returns.

In its most recent quarter (Q3 2024), WCN delivered 13.3% year-over-year revenue growth, bringing in $2.3 billion. Net income rose to $308 million, and the company reported an adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) margin of 33.7% – up by 120 basis points compared to the previous year. These figures underscore WCN's ability to generate robust profits even in challenging economic conditions.

WCN also shines as a dividend-paying stock. The company recently raised its regular quarterly dividend by 10.5%. This reflects its financial health and commitment to rewarding shareholders. With a forward annual dividend rate of $1.76 and a payout ratio of 31.3%, WCN offers reliable income without compromising its ability to reinvest in growth.

Looking ahead, WCN's future prospects remain bright. The company raised its full-year 2024 outlook, projecting revenues of approximately $8.9 billion. That's $150 million higher than its original forecast. This optimistic revision is driven by strong operational execution and strategic acquisitions, both of which position WCN for sustained long-term growth. For passive income investors, these factors translate into potential capital appreciation alongside a dependable income stream.

Stable passive income

In addition to its financial metrics, WCN's business model is inherently stable. Waste management services are always in demand, and the company's expansion strategy ensures it remains competitive in North America. Its ability to navigate rising costs and regulatory challenges speaks to strong leadership and efficient operations. These attributes make WCN a resilient addition to a diversified portfolio.

Investing in companies like WCN aligns with the philosophy of using passive income to accelerate wealth accumulation. By reinvesting dividends, investors can harness the power of compounding. Over time, this reinvestment strategy transforms regular dividend payouts into exponential portfolio growth. Furthermore, WCN's consistent performance and commitment to shareholder value make it a cornerstone for long-term investors.

Of course, no investment is without risks. Investors should always perform due diligence, considering factors like market conditions, sector trends, and individual financial goals before committing to any stock. Diversifying across sectors and asset classes can mitigate risks while ensuring a balanced approach to growth.

Bottom line

In summary, while the average TFSA and RRSP balances at 40 might fall short of retirement goals, strategies like passive income investing can help bridge the gap. A stock like WCN combines steady returns, strong dividend payouts, and long-term growth potential, thus making it an excellent candidate for those looking to enhance their savings. With a well-thought-out approach, Canadians can build a more secure financial future and move closer to their dream retirement.