One of the many great things about a Tax-Free Savings Account (TFSA) is the potential to invest and generate a tax-free income. For those investors who pick the right stocks and invest early, a TFSA can be a great way to generate monthly retirement income.
Perhaps best of all, it’s a lot easier than you think. Here’s a look at several great options to add to your TFSA now that can provide $250 or more in monthly retirement income.
Forget the housing shortage and rising interest rates
Historically, one of the best ways to establish monthly retirement income was to own a rental property. Unfortunately, in recent years, that dream has faded, as rising interest rates and home prices have priced out many would-be landlords.
Additionally, those that can still afford a property, have to deal with a mortgage, property taxes, upkeep, and tenant issues.
Fortunately, there is a simpler way that comes thanks to RioCan Real Estate (TSX: REI.UN). RioCan is one of the largest real estate investment trusts (REITs) in Canada, with a portfolio of over 190 properties.
A growing number of those properties are mixed-use residential units, situated along high-traffic, in-demand areas in major metro markets. That fact alone makes RioCan a lower-risk option for prospective landlords. But what really sets this REIT apart is the juicy monthly distribution.
Much like a landlord expecting rent, investors of RioCan expect a monthly distribution. As of the time of writing, the yield works out to an impressive 6.20% yield. This means that investors who drop $30,000 into RioCan (as part of a larger, diversified portfolio) can expect to generate a monthly retirement income of just over $150.
Keep in mind, as part of your TFSA, that’s tax-free, and there’s no mortgage payment, tenant issues or maintenance involved. The investment is also considerably lower than a typical downpayment, and your risk is spread across a portfolio of hundreds of properties.
Perhaps best of all, thanks to the market volatility we’ve seen this year, RioCan, like much of the market is trading down this year. Year to date, the stock is down 17%, making it a great time to buy it at a deep discount.
Here’s a well-diversified, long-term pick
Another great example of a diversified stock that can provide monthly retirement income is Exchange Income Corporation (TSX: EIF). Exchange is an acquisition-oriented company that owns over a dozen subsidiary companies.
Those subsidiaries provide Exchange with a healthy (and growing) source of revenue. Those subsidiaries are broadly classified across two key groups: manufacturing and aviation.
More importantly, those subsidiaries offer two unique factors to consider that help to make Exchange a superb option.
First, we have the fact that the subsidiaries provide a necessary service for which there is limited, if any competition. By way of example, let’s look at the aviation side of the business. Exchange’s subsidiaries offer passenger and freight air service to the remote regions of Canada’s north. On the manufacturing side, an example is wireless tower fabrication and installation services.
The unique, yet necessary niche market those subsidiaries serve leads to the second point: free cash generation. Each of those subsidiary companies generates cash for Exchange. This allows Exchange to invest in additional acquisitions and pay out a very generous dividend.
That dividend is paid out monthly and currently works out to a juicy 5.90% yield. This means that investors who allocate $40,000 to Exchange can expect to generate a monthly retirement income of just over $180.
It’s also worth noting that Exchange currently trades down this year. As of the time of writing, Exchange trades at a 12% discount year to date, making it a great time to buy.
A monthly retirement income of $250 (or more) is possible
No stock, even the most defensive, is without some risk. That’s why it’s important to diversify your portfolio. Fortunately, both Exchange and RioCan offer investors some defensive appeal, making them perfect additions to larger, well-diversified portfolios.
They can also provide investors with a juicy monthly retirement income, well north of $250.
| Company | Recent Price | No. of Shares | Dividend | Total Payout | Frequency |
| RioCan Real Estate Investment Trust | $17.46 | 1,717 | $1.08 | $154.53 | Monthly |
| Exchange Income Corporation | $45.94 | 653 | $2.52 | $137.13 | Monthly |
