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Retirees: Earn $600/Month in Tax-Free Pension Income in Your TFSA

While everyone has their own take on retirement, after working hard your whole life, it’s a well-earned break.

After all, you can make up for all the lost time that you spent working. That said, a carefree and breezy retirement depends a great deal on your income streams. As a retiree, your primary income stream might’ve dried up, and it’s time to start a new one.

The best way to do it is with TFSA. If you and your spouse had started a TFSA when it became available in 2009, you might have had a nice little nest egg by now.

But even if you haven’t, using the combined contribution limit of your TFSA, you can create a $600 monthly income generation that’s completely tax-free.

The combined contribution limit of a couple is $127,000 right now. That’s a decent sum, but it won’t help you generate a sizeable income using only interest. You must find stocks with a high dividend yield and a stellar dividend history so you know that your dividend-based income isn’t going anywhere.

Two stocks that can help you create a $600 a month income using your $127,000 investment are Keyera (TSX:KEY) and Laurentian Bank (TSX:LB).

A midstream energy company

Keyera is a natural gas gathering and processing company that works on a pay-for-service model. It’s a major service provided to oil and gas producers. Compared to many in the sector, it’s a small company, but its dividend yield packs quite a big punch.

Currently, the dividend yield is 5.78%, and Keyera has increased dividend payouts for seven consecutive years. Despite the high number, the payout ratio is relatively stable at 67.4%.

With your investment, this yield will get you a monthly payout of $611. It’s a decent enough some to contribute to your comfy retirement, and its beta of 1 should also put you at ease concerning its stability.

Currently, Keyera is trading at a monthly high of $33 a share at writing. If it follows the yearly growth of 18.5%, you stand at a chance of increasing your capital gains as well.

A bank that’s not in the Big Six

With a market cap of about $2 billion, Laurentian Bank is quite small compared to the Big Six, albeit it does share the banking sector’s other solid values: stability and high dividend yields. As of now, the dividend yield of the bank is 5.7%, and a stable payout ratio of 65%.

Laurentian has increased dividend payouts for 11 consecutive years. With the current yield, you’ll earn a monthly sum of $603 a month.

At $46.3 a share, the bank has shown a 12.5% increase in market value from the same time last year. At a price-to-book ratio of 0.85, the bank is relatively undervalued.

Foolish takeaway

Earning a good monthly income through well-paying dividend stocks is easy if you only look at the dividend yield. But finding a stable stock that won’t cut its dividend payouts in harsh times requires a closer look.

Laurentian Bank and Keyera are both stable stocks with good history through bad times, and they deserve to be considered for the generation of your tax-free pension income.

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This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Adam Othman has no position in any of the stocks mentioned.

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