TFSA: How to Invest for $250 Monthly in Retirement

Back in the old days, having a single job was sufficient to feed a family of four. But times are changing. Even with a higher paycheque, a single source of income is insufficient. Imagine retiring into the pandemic or the high inflationary environment of 2022. Even the employed are struggling to make ends meet. The need of the hour is multiple sources of income to live a comfortable retirement. The stock market is a good source of earning passive income. 

While the Canada Pension Plan (CPP) can give you $811/month in 2023, it is insufficient. Moreover, the CPP and Registered Retirement Savings Plan (RRSP) withdrawals are taxable. Consider investing a small monthly amount in your Tax-Free Savings Account (TFSA) towards retirement. The TFSA withdrawals are tax free and can be a great source of income for emergencies.

How to invest for a $250 monthly retirement income 

If you are retiring in 2023, you can put 60-70% of your TFSA investments in Dividend Aristocrats. A $50,000 investment in stocks with a 6% dividend yield could earn you $3,000 in annual passive income. 

Note that most Canadian stocks pay dividends quarterly. If your portfolio gives you $3,000 in annual dividends, you will receive $750 dividend income every quarter, depending on the company’s payout date. 

Even though you receive the amount quarterly, it is up to you when you want to withdraw — monthly, quarterly, or annually. So, don’t get confused when I say $250 monthly retirement income or $3,000 annual passive income. They are the same.  

How to build a $50,000 TFSA portfolio 

Now, the task is to grow your TFSA portfolio to $50,000. You can invest small amounts in growth stocks hoping your investments to double or triple. Also, invest small amounts regularly in dividend stocks to lock in your passive income. You could sell some growth stocks at a profit and use that money to invest in dividend stocks if you want a higher passive income to cope with inflation. 

Here is a dividend stock to get you started with investing. 

Dividend stock

Bank of Nova Scotia (TSX:BNS) is a Dividend Aristocrat that can give you more than a 6% dividend yield if you buy the stock below $68. Scotiabank is different from other Canadian banks, as it has a diversified geographic exposure in Canada, the United States, Mexico, Chile, Peru, and Columbia. It funds the majority of its business loans through wholesale funding, which has a higher interest rate than consumer deposits. 

While its diversified platform has merits, its funding profile keeps profitability low in a high interest rate environment. Moreover, the bank has increased provisions for credit losses. Despite these challenges, the bank is well funded to withstand a crisis. So far, the bank has shown no signs of a dividend cut. Even if it cuts dividends, the bank could recover with the economy. It could resume dividend growth in a strong economy and make up for weak years. 

Tracking your investment to stay on course for a $250 monthly retirement income 

The above stock is an investment suggestion to start with. The next step is to track your investments.  

First, determine how much you can invest every year. Then look at your portfolio’s average yield in the past five years. Once you have these two pieces of information, plug them in the below table and get a fair idea of how far you are from a $250 monthly retirement income.

If you invest $6,000/year in a portfolio that earns a 6% dividend yield and reinvest the dividend income, you can reach $3,000 annual passive income in seven years. 

Instead of investing the entire $6,000 in one bank stock, you could consider dividing the amount between Scotiabank, Enbridge, and BCE — all of which have a dividend yield of over 6%.