Did you know that the average Tax-Free Savings Account (TFSA) balance for Canadians aged 64 is around $150,000? This figure comes from a 2023 study by the Canadian Institute of Chartered Accountants (CICA). While $150,000 may not be enough to fund a retirement on its own, it can significantly boost your overall income by complementing your Registered Retirement Income Fund (RRIF), Canada Pension Plan (CPP), and Old Age Security (OAS) payments with tax-free income.
The Right ETF for Stable Income
To maximize the potential of your $150,000 TFSA, you’ll need an investment that generates steady, monthly income with minimal volatility. At age 64, with a shorter time horizon and lower risk tolerance, prioritizing stability is crucial.
One such investment option is the iShares Canadian Financial Monthly Income ETF (TSX:FIE), which has been a top choice for Canadian investors seeking reliable income.
How the iShares Canadian Financial Monthly Income ETF Works
Launched in April 2010, this ETF is one of the longest-standing Canadian income ETFs available. FIE operates as a fund of funds, with approximately:
- 20% in preferred share ETFs
- 10% in corporate bond ETFs
- 70% in Canadian financial stocks, including the major banks, insurance companies, and other key players like asset managers, lenders, and stock exchanges.
FIE generates income through dividends paid by financial stocks and preferred shares, along with interest from corporate bonds. As of November 21, the fund’s yield is 5.86%.
How Much Could You Earn with a $150,000 TFSA?
With a $150,000 TFSA, you could purchase 18,292 shares of FIE, as it trades at $8.20 per share. Based on the most recent distribution of $0.04 per share, this would yield $731.68 monthly or $8,780.16 annually in tax-free passive income. Plus, there’s potential for modest growth in the share price over time.
| ETF | Recent Price | Shares Purchased | Dividend | Total Monthly Payout | Frequency |
|---|---|---|---|---|---|
| FIE | $8.20 | 18,292 | $0.04 | $731.68 | Monthly |
Considerations When Investing in FIE
While FIE is an excellent option for those seeking tax-free income, there are some limitations to be aware of:
- Limited diversification: FIE primarily focuses on the Canadian financial sector, so it may not provide as much diversification as other funds.
- Management expense ratio (MER): The MER is 0.75%, which is somewhat higher than average but typical for income-focused funds.
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A $150,000 TFSA balance can significantly enhance your retirement income, especially when invested in a stable ETF like the iShares Canadian Financial Monthly Income ETF. With its consistent monthly payouts and focus on reliable Canadian financial institutions, it can provide a solid foundation for your retirement income strategy.
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