Canadian pensioners are using their self-directed Tax-Free Savings Account (TFSA) to build portfolios of investments that can provide tax-free earnings to go along with their Canada Pension Plan (CPP), Old Age Security (OAS), and work pensions.
Source: Getty Images
TFSA benefits for investors
The TFSA contribution limit in 2026 is $7,000. This brings the cumulative maximum TFSA contribution space per person to $109,000 for anyone who has qualified since the government launched the TFSA in 2009. A retired couple, therefore, would have as much as $218,000 in combined TFSA room to invest.
All capital gains, dividends, and interest income generated inside a TFSA on eligible investments are not taxable and can be either fully reinvested or removed as tax-free income. This is particularly appealing for pensioners who collect OAS and have relatively high incomes. The CRA does not count TFSA earnings towards the net world income calculation used to determine the OAS pension recovery tax, which is 15% on every dollar of net world income above a minimum threshold. The number to watch in the 2026 income year is $95,323.
GICs or dividend stocks
Investors who don’t need quick access to the invested funds, are risk-averse, and are comfortable with a lower return might want to put a higher portion of their TFSA investments in non-cashable GICs that currently offer rates of 3% to 4%, depending on the term and the issuer. As long as the GICs are purchased from a Canada Deposit Insurance Corporation (CDIC) member and are within the $100,000 limit, the invested capital is safe.
Dividend stocks provide liquidity, as shares can be sold at any time. In addition, they often have yields that are above GIC rates. In addition, top dividend stocks increase their distributions regularly, which raises the yield on the initial investment.
Enbridge (TSX: ENB) is a good example of a leading dividend-growth stock that also provides an attractive yield.
The energy infrastructure and utilities giant has raised its dividend in each of the past 31 years. The company’s $41 billion secured capital program is expected to drive earnings and distributable cash flow higher by about 5% per year over the medium term. This should support ongoing dividend growth.
Enbridge trades near $70 per share at the time of writing. The stock is down from $80 in recent weeks, but is still up about 8% over the past year. Investors who buy ENB at the current price can get a dividend yield of 5.5%.
The trade-off for the higher yield and potential capital gains is the risk that the share price can fall below the purchase price, and dividends are never 100% safe. Investors have to be willing to accept the potential downside when considering buying shares.
The bottom line
The best mix of GICs and dividend stocks is different for every person, depending on individual needs.
In the current market conditions, it is quite easy to put together a diversified portfolio of GICs and dividend-growth stocks to get an average yield of at least 4%. This would generate annual earnings of $4,360 on a $109,000 TFSA. A retired couple could generate $8,720 per year in tax-free passive income.
