Canadian retirees are wondering how they can get decent returns on their self-directed Tax-Free Savings Account (TFSA) contributions without taking on too much capital risk.
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TFSA benefits
The TFSA limit in 2025 is $7,000. This brings the cumulative maximum contribution space per person to $102,000 if they qualified every year since the inception of the TFSA in 2009. As such, many retirees would have TFSA portfolios of $35,000 or more today.
Interest, dividends, and capital gains earned inside the TFSA are all tax-free and can be fully removed as income or reinvested without worrying about sharing some of the profits with the CRA. In addition, seniors who receive Old Age Security (OAS) don’t have to worry about the TFSA income incurring the OAS pension recovery tax, otherwise known as the OAS clawback. In the 2025 income year, every dollar of net world income above $93,454 triggers a $0.15 reduction in total OAS payable in the July 2026 to June 2027 payment period.
TFSA money can be removed at any time. Withdrawal amounts in a calendar year open up equivalent new contribution room in the following calendar year, in addition to the regular annual TFSA limit.
Best TFSA investments for income
The TSX is at a record high, and many top dividend stocks have enjoyed large rallies in the past year. In this scenario, it makes sense to sprinkle in some guaranteed investment certificates (GICs) to reduce risk while still getting decent returns. GIC rates are not as high as they were in the fall of 2023 when rates briefly hit 6% on some offerings, but investors can still get non-cashable GIC rates above 3.5%, depending on the term and the issuer. This is comfortably above the current rate of inflation, so it is worthwhile to go this route with some of the TFSA savings.
Dividend stocks come with risk. The share price can fall below the purchase price and dividends sometimes get cut if a company gets into financial trouble. That being said, the yields on many top dividend-growth stocks are higher than GIC rates right now and each dividend increase raises the yield on the initial investment. Companies that boost their dividends regularly tend to bounce back from market corrections. Investors can use the dips to add to the position.
Enbridge (TSX:ENB) is a good example of a top TSX dividend-growth stock that provides a high yield.
The board raised the dividend in each of the past 30 years. Enbridge’s current $28 billion capital program will drive earnings growth over the medium term. This should support ongoing dividend increases in line with expansion in distributable cash flow of 3% to 5%. Investors can buy ENB stock right now on a small dip and pick up a dividend yield of 6.1%.
The bottom line
Investors can quite easily put together a diversified portfolio of GICs and top TSX dividend stocks to get an average yield of 4% to 5% today for a self-directed TFSA. This is a decent return while reducing the portfolio risk by including GICs in the mix.
