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Retirees: How to Earn $529 Per Month in Tax-Free Passive Income

With GIC rates barely covering inflation, retirees are searching for options to get better returns out of their savings without taking on too much risk.

One way to boost income while avoiding a tax hit is to own quality REITs and dividend stocks inside a TFSA. Pensioners get the added benefit of not having to worry about the gains putting their income over the OAS claw back limit.

The cumulative TFSA contribution room is up to $63,500 per person. That means a couple can generate tax-free income on $127,000 in investments.

Let’s take a look at two stocks that might be interesting picks today for a TFSA income portfolio.

RioCan

RioCan Real Estate Investment Trust (TSX:REI.UN) is Canada’s largest owner and operator of shopping malls.

The retail industry is undergoing a major transition due to the expansion of online sales. Large department chains have closed, including some of RioCan’s clients, and more will certainly follow.

However, the company’s locations remain in high demand, and RioCan has managed to find new tenants at higher prices when the larger companies leave.

No single customer accounts for more than 5% of revenue, so the departure of a store isn’t going to have a material impact.

Nonetheless, RioCan knows the industry is changing, and management is now shifting new investment to mixed-use developments in six core markets. The combined retail and residential sites provide a more balanced revenue stream and investors should see distributions increase and the new projects are completed.

Falling interest rates and declining bond yields should be supportive for RioCan, as it can borrow funds at cheaper rates and free up more cash to return to investors.

The current distribution provides a 5.5% yield.

BCE

BCE (TSX:BCE)(NYSE:BCE) is a good option for investors seeking a defensive stock that pays a solid dividend.

The company’s leadership position in the Canadian communications industry gives it a wide moat and BCE’s revenue stream should be relatively safe even in the event we see a global economic downturn.

BCE continues to invest billions of dollars in new technology and network upgrades to ensure it can provide retail and business customers with world-class mobile, internet, and TV services.

The company reported strong results for Q2 2019 and is on target to hit its objectives for the year. Free cash flow growth, which is important for dividend investors, should be in the upper end of the 7-12% guidance.

As with RioCan, the trend toward lower interest rates and weaker bond yields is positive for BCE. Income investors are dumping GICs in favour of reliable dividend stocks, and BCE is one of the favourites.

The nature of the Canadian communications industry makes BCE attractive, and while the stock now trades near its 12-month high, it still provides a 5% yield.

The bottom line

RioCan and BCE pay reliable above-average dividends and should be strong anchor positions for a balanced income portfolio of stocks that offer 5%, or better, yields. A Canadian couple with $127,000 invested in such stocks would be able to generate at least $6,350 in tax-free income per year.

That’s an extra $529 per month!

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Fool contributor Andrew Walker owns shares of BCE.

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