Retirees have a very different objective than younger investors. At this stage, it’s no longer about chasing maximum growth and hoping volatility works out over 30 years. You don’t always have the luxury of time to recover from a 30% or 40% drawdown.
The priority shifts to protecting principal first, then generating reliable income — ideally enough to meet the minimum annual withdrawals required from a Registered Retirement Income Fund (RRIF).
For most Canadians, that income should complement guaranteed sources such as the Canada Pension Plan (CPP) and Old Age Security (OAS). The goal isn’t to swing for the fences. It’s to build a portfolio that can help fund your lifestyle without constant stress.
You could assemble your own basket of dividend stocks, real estate investment trusts (REITs), and royalty trusts. But that requires monitoring, rebalancing, and managing risk. A simpler approach is to outsource the heavy lifting to an exchange-traded fund (ETF).
However, not all income ETFs are appropriate for retirees. Many use leverage or covered call strategies. Those can increase risk, cap upside, and layer on higher fees. If the goal is stability and sustainability, you need something more balanced.
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The mental accounting of retirement income
Before choosing an income ETF, it’s important to understand how distributions actually work. When a stock or fund pays a dividend, its price drops by the amount of the distribution on the ex-dividend date, all else being equal.
For example, a $100 fund that pays a $1 distribution is mechanically worth $99 the next morning. It may recover during the day if markets rise, but the payout itself isn’t free money.
Mathematically, receiving a $1 distribution is no different from selling $1 worth of shares yourself. Either way, your account value is reduced by $1. But psychologically, it feels different.
When a fund sends you a distribution, it feels like income. When you sell shares to create your own “paycheque,” it feels like you’re depleting your nest egg. Even though the math is the same, the emotional experience is not.
That’s why, for retirees, the focus should be on hard risk reduction. Look for low fees, broad diversification, and a distribution policy that is transparent and sustainable.
Why I like this income ETF
Most investors are familiar with asset allocation ETFs. These combine stocks and bonds into a single portfolio — 100% equity, 80/20, 60/40, 40/60 — allowing you to match your risk tolerance and time horizon with one holding.
For retirees, I like the BMO Balanced ETF (TSX: ZBAL), which holds roughly 60% in stocks and 40% in bonds.
For a 0.20% expense ratio, it provides diversification across Canada, the U.S., international developed markets, and emerging markets. It’s simple, low-cost, and broadly diversified.
The challenge is that its natural yield is modest, currently around 2% with quarterly payouts. That means retirees would need to sell units periodically to generate sufficient income.
However, BMO offers an alternative: ZBAL.T. This version targets an annual distribution of roughly 6%, set each year. Unlike the standard version, the distribution is paid monthly.
That payout is funded through a combination of dividends from underlying stocks, interest from bonds, realized capital gains, and sometimes return of capital. For 2026, the current yield works out to about 5.3%.
It’s not magic. But for retirees who prefer predictable portfolio withdrawals for income without manually selling shares, ZBAL.T can simplify the process while maintaining diversified exposure.
