TFSA: How to Create $500 in Income Each Month for Retirement

Want to earn $500/month of passive income in your TFSA? Here’s a quick and easy way to get there in 10 years or less.

| More on:
Retirees sip their morning coffee outside.

Source: Getty Images

The Tax-Free Savings Account (TFSA) is an incredible tool for anyone looking to build wealth for retirement. All your income (capital gains, dividends, or interest) is safe from tax reporting or tax liability in the account. By paying no tax on investment income, Canadians save as much as 10-20% more of their capital.

Over years and decades, that amount saved can be worth a small fortune, especially if it is compounded at a high rate of return. If you have a lot of time, you can build a TFSA passive-income stream that you can rely on in retirement.

Earning $500/month is more tangible than you think

If you wanted to earn $500 per month ($6,000 per year) in passive income in retirement, you would need around $120,000 invested in dividend producing stocks (at a 5% average dividend yield).

$120,000 is a big sum. It is also a sum larger than the current total TFSA contribution limit of $88,000 today. Fortunately, if you have years and decades to invest, it is still a tangible goal for retirement.

You only need $25,000 today to have $120,000 in 10 years

Let’s say that today, you only start out with $25,000 invested in your TFSA. If you invest it in quality Canadian dividend stocks, with a 5% average yield, you could earn as much as $1,250 a year in dividends.

Then add the $6,500 annual TFSA contribution limit every year. In 10 years or less, the combination of dividends and contributions invested could compound into $120,000. That doesn’t factor any capital gains into the equation either.

The point is, it is possible to earn $500 in monthly income (and relatively quickly). It will take discipline, patience, a savings mentality, and smart stock picking. Speaking about stock picking, here are two quality dividend stocks that could help you hit your $500/month goal.

A top renewable stock for any TFSA

Brookfield Renewable Partners (TSX:BEP.UN) is a global leader when it comes to owning and developing renewable and alternative power assets. It currently operates 24 gigawatts of power, but it has a development pipeline more than four times that size. Now, not all of that will be completed, but it just demonstrates the scale of opportunities in front of the company.

Scale matters when it comes to capital and operating efficiency. That is why Brookfield is one of the highest-quality stocks in the renewable segment.

It is not the cheapest stock, but after a recent pullback it trades with an attractive 5% dividend yield. If you want exposure to the renewable trend, this is a quality stock to hold for income and modest growth ahead.

A top telecom stock for a TFSA

A blue-chip stock to consider buying for your TFSA is TELUS (TSX:T). It is Canada’s second-largest telecommunications stock. When interest rates were low, TELUS wisely accelerated its fibre and 5G infrastructure spending.

Now, it has one of the best networks in Canada. Combine that with its unique blend of bundled offerings, and TELUS has been delivering industry-leading customer additions and earnings growth.

TELUS has also been building out an array of digital businesses that are gaining steam. This is an undervalued growth option for the stock. After a recent pullback, TELUS stock yields a 5.2% dividend. It has a great history of growing that dividend, so your TFSA income compounding could accelerate even faster than anticipated.

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 Robin Brown has no position in any of the stocks mentioned. The Motley Fool recommends Brookfield Renewable Partners and TELUS. The Motley Fool has a disclosure policy.

More on Dividend Stocks

analyze data
Dividend Stocks

Better RRSP Buy: BCE Stock or Enbridge Stock?

BCE and Enbridge look like cheap stocks today for RRSP investors.

Read more »

Dollar symbol and Canadian flag on keyboard
Dividend Stocks

TFSA: 3 of the Best Canadian Dividend Stocks to Buy This Year

These three Canadian dividend stocks are some of the best to buy for the long haul and have tremendous potential…

Read more »

Young woman sat at laptop by a window
Dividend Stocks

Why I’ll Continue Drip-Feeding This Superb Dividend Stock, Recession or Not

There is a long history of this dividend stock bouncing back post recession, which is why I'll continue to drip-feed…

Read more »

Various Canadian dollars in gray pants pocket
Dividend Stocks

TFSA Investors: Earn $60/Month With These 2 Top Dividend Stocks

BCE stock is one of two top dividend stocks that can help you achieve your tax-free income goals in your…

Read more »

financial freedom sign
Dividend Stocks

TFSA Investors: 2 TSX Stocks for a Legit Shot at $1 Million in 20 Years

Save and invest regularly in a diversified group of solid stocks for a legitimate chance of hitting $1 million and…

Read more »

edit Business accounting concept, Business man using calculator with computer laptop, budget and loan paper in office.
Dividend Stocks

How Much Do You Need to Invest to Get $400 a Month in Dividends?

Creating passive income this high doesn't come cheap, but you can still save about $30,000 investing today rather than at…

Read more »

bulb idea thinking
Dividend Stocks

Dividend Investors: 2 Stocks for Decades of Passive Income

Add these two TSX dividend stocks to your self-directed portfolio to generate passive income for decades.

Read more »

Businessman holding tablet and showing a growing virtual hologram of statistics, graph and chart with arrow up on dark background. Stock market. Business growth, planning and strategy concept
Dividend Stocks

Beat the TSX With This Unstoppable Dividend Stock

This top dividend stock has significantly outperformed the TSX over the last decade, making it one of the best to…

Read more »