How much do you want to earn when you retire from work? Your Canada Pension Plan (CPP) could give you an average monthly payout of $717.50. If your Tax-Free Savings Account (TFSA) could give you another $300 in monthly income, it could cover the rising cost of living. Every passing year, the cost of living is rising. And with the pace at which things are developing, you need a separate monthly payout to cope with the price shocks.
How to earn $250 in monthly income through your TFSA
While you still have time to retire, you can set aside a small amount for a tax-free monthly payout. The TFSA allows you to invest $6,000 on average every year. This year, it increased the contribution window to $6,500. Here are three ways to invest in your TFSA for a $250 monthly income.
Invest regularly today for regular income tomorrow
One method is to invest $3,000 annually in an income portfolio (stocks with a 6% dividend yield) and reinvest the dividend amount. By 2035, your dividend income will reach $3,000 annually, or $250 a month.
| Year | Investment | 6% Dividend Yield | Total Amount |
| 2023 | $3,000 | $3,000.0 | |
| 2024 | $3,000 | $180.0 | $6,180.0 |
| 2025 | $3,000 | $370.8 | $9,550.80 |
| 2026 | $3,000 | $573.0 | $13,123.85 |
| 2027 | $3,000 | $787.4 | $16,911.28 |
| 2028 | $3,000 | $1,014.7 | $20,925.96 |
| 2029 | $3,000 | $1,255.6 | $25,181.51 |
| 2030 | $3,000 | $1,510.9 | $29,692.40 |
| 2031 | $3,000 | $1,781.5 | $34,473.95 |
| 2032 | $3,000 | $2,068.4 | $39,542.38 |
| 2033 | $3,000 | $2,372.5 | $44,914.93 |
| 2034 | $3,000 | $2,694.9 | $50,609.82 |
| 2035 | $3,000 | $3,036.6 | $56,646.41 |
REITs are the best option for monthly payouts as they pass on their monthly rent to shareholders. REITs stock prices are spiralling down as the TSX Composite Index falls. The Canadian housing bubble could burst, and record-high interest rates could increase the risk of mortgage defaults. Investors are skeptical about investing in banks and REITs as property prices are falling. Many commercial property REITs are slashing distributions, the latest one being NorthWest Healthcare REIT.
While REITs might look like a risky investment today, CT REIT (TSX:CRT.UN) is a relatively safer investment as it earns more than 90% of its rental income from its parent Canadian Tire. Like all REITs, CT REIT has $2.8 billion in debt, but it also has regular cash flows that remain intact thanks to high occupancy. While CT REIT is not immune to a recession, it has better odds to withstand one without a dividend cut. Given the current bearish investor sentiment around real estate, CT REIT stock is oversold, giving you an opportunity to lock in a 6.56% yield.
Invest a lump sum in a bear market
While I prefer a regular monthly investment, the market bearishness has created a pandemic-like opportunity to accumulate dividend aristocrats at dirt-cheap prices. Pipeline stocks like Enbridge (TSX:ENB) are trading closer to their pandemic low. You can lock in an over 8% yield. If the percentages confuse you, look at it this way. You can lock in a decade or even more of a $3.55 annual payout for every $43 invested today.
If you haven’t used your TFSA contribution, a $37,000 investment can buy you 860 shares of Enbridge and give you $3,053 in annual dividends in four quarterly payouts.
And even if you don’t have that high a contribution room, you can sell oil stocks like Suncor Energy and buy Enbridge shares. Pipeline stocks are at their low, and oil stocks are at their highs. The latter has a higher probability of falling. Between the two, Enbridge is offering a higher yield (8.2%) than Suncor (4.78%).
Invest in growth stocks now and later switch to income stocks
It is not necessary to invest in income stocks to get a retirement income. You can consider investing in attractive growth stocks like Nvidia or Descartes and build wealth through capital appreciation. Next time, when income stocks crash, you can cash out some of the profits and invest in dividend stocks. But this method needs active investing and is risky.
There are multiple ways to invest to meet a retirement goal. Each method involves a different type of investor sentiment. Choose the way that works for you.
