The Motley Fool

Retirees: How to Generate Over $500/Month in Tax-Free Income

Image source: Getty Images

Retirees have been thrown into a challenging environment in 2020. Earlier this year, I’d discussed how retirees can gobble up huge income on a monthly basis. Today, I want to discuss how some tactical investments in a TFSA can help retirees generate over $500/month in tax-free income. In this hypothetical, we’re going to be using the entirety of the $69,500 cumulative room in a TFSA.

Retirees: Two REITs that can generate huge income

RioCan REIT (TSX:REI.UN) is the first income-generating stock I want to look at today. Its shares have plunged 38% in 2020 as of close on August 20. REITs have been hit hard by uncertainty due to the COVID-19 pandemic. The stock last closed at $15.58.

In our hypothetical, we will purchase 1,347 shares of RioCan REIT for a little under $21,000. RioCan REIT pays out a monthly dividend of $0.12 per share. With this holding in our TFSA, we will be able to generate $161.64 in tax-free monthly income. That works out to $1,939 in annual tax-free income. This is a great starting point for retirees, but we’re not done yet.

True North REIT (TSX:TNT.UN) is another open-ended real estate investment trust. This REIT operates a portfolio of commercial properties in urban cities across Canada. Shares of True North have dropped 13% so far in 2020. However, its shares have increased 14% over the past three months. This is another REIT worth owning for retirees.

The stock last closed at $5.96. In our hypothetical, we’re going to purchase 4,194 shares for a little under $25,000. This is due to True North’s tantalizing value. It last possessed a favourable price-to-earnings ratio of 14 and a price-to-book value of 0.9. True North currently offers a monthly distribution of $0.0495 per share. This holding in a TFSA would net $207.60 per month in tax-free income.

With our two REITs and less than $47,000 in TFSA room, we net nearly $370/month in tax-free income.

One healthcare stock that pays a tasty dividend

In May, I’d discussed why investors should pursue healthcare stocks in 2020 and beyond. Extendicare is a stock suited to retirees because of its income and its position in a promising space. The company provides care and services for seniors in Canada.

Shares of Extendicare have fallen 31% in 2020 as of close on August 20. It last closed at $5.51. Today, we’re going to purchase 2,450 shares of Extendicare for just under $13,500. Extendicare last declared a monthly distribution of $0.04 per share, representing an 8.7% yield. With our holdings, that works out to a monthly tax-free dividend payout of $98.

Retirees should also consider this energy stock

Keyera is the final stock I want to look at for retirees today. This company is engaged in the energy infrastructure business in Canada. Its stock has dropped 23% so far this year. Keyera stock last closed at $24.85.

In this hypothetical, we’re going to spend the rest of our TFSA room and purchase 402 shares of Keyera stock. It currently offers a monthly dividend of $0.16 per share, which represents a strong 7.7% yield. This would net a tax-free payout of $64.32 on a monthly basis.

Retirees can sleep easy knowing that their TFSA would generate over $530/month in dividend income. That works out to over $6,300 on an annual basis.

Speaking of stocks that retirees can snag in August...

The 10 Best Stocks to Buy This Month

Renowned Canadian investor Iain Butler just named 10 stocks for Canadians to buy TODAY. So if you’re tired of reading about other people getting rich in the stock market, this might be a good day for you.

Because Motley Fool Canada is offering a full 65% off the list price of their top stock-picking service, plus a complete membership fee back guarantee on what you pay for the service. Simply click here to discover how you can take advantage of this.

Click Here to Learn More Today!

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 Ambrose O'Callaghan has no position in any of the stocks mentioned. The Motley Fool recommends KEYERA CORP.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss an important event.

Iain Butler and the Stock Advisor Canada team only publish their new “buy alerts” twice a month, and only to an exclusively small group.

This is your chance to get in early on what could prove to be very special investment advice.

Enter your email address below to get started now, and join the other thousands of Canadians who have already signed up for their chance to get the market-beating advice from Stock Advisor Canada.