Retirement Planning: How to Generate $3,000 in Monthly Income

When you are planning for retirement, it is important to map out ways to supplement your income. Not everyone has the benefit of a cushy pension. The Canada Pension Plan (CPP) is hardly enough to live off of.

Inflation has been soaring in the past few years. If you have a set retirement income, you need ways to offset the degrading costs of inflation.

Stocks are a great passive income alternative for retirement

Despite their volatility, stocks are an attractive place to look for passive income. Stocks are completely liquid, and you can cost-effectively buy and sell them whenever and however you want.

If you are wondering how to earn $3,000 of monthly supplementary income, you first need to understand how much capital you will need to invest. Note that $3,000 per month is $36,000 annualized.

You’ll need $800,000–$1.6 million to earn $30,000/month

There are a few ways you could go about collecting that required return. The first is that you could buy an index fund as a passive investor. The iShares Core S&P/TSX Composite Index ETF offers a 2.2% dividend yield today.

If you wanted to earn an average $3,000 per month, you would need to invest $1.6 million ($36,000 divided by 2.2%). While there is nothing wrong with passive investing, most investors are likely to do much better if they build their own investment portfolio.

There are plenty of quality companies that pay dividends between 3% and 6%. If you could collect a portfolio average yield of 4.5%, you would only need to invest $800,000 to earn $3,000 per month ($36,000 divided by 4.5%). That is half the capital which you would need if you only bought the index ETF.

If building your own retirement portfolio is an appealing strategy, a few stocks you might want to look at are Fortis (TSX:FTS) with a 3.5% yield, First Capital REIT (TSX:FCR.UN) with a 4.7% yield, and Pembina Pipeline (TSX:PPL) with a 5.6% yield.  Combined, these three stocks could earn an average of a 4.6% dividend yield.

Fortis: A perfect retirement stock

Fortis is the perfect anchor for a retiree’s portfolio. Its nine regulated North American utilities are focused on transmission and distribution. These are some of the most stable utility assets you can find.

Fortis is the closest stock you will find to a bond. Yet, unlike a bond, its payments are actually growing. It has a 52-year history of consecutively raising its annual dividend.

With a target to grow its dividend by 5–7% annually, its dividend income should more than offset inflation.

First Capital REIT

First Capital REIT is one of Canada’s largest grocery-anchored retail landlords. Its properties provide essential goods and services like groceries, pharmacy, medical, and financial.

With a focus on urban centres, its properties are well-located and highly attractive. It has been enjoying mid-to-high single-digit rental rate growth over the past several years.

First Cap pays a consistent monthly distribution. Given that its balance sheet has significantly improved in the past three years, it could start growing its distribution in the next few years. FCR.UN could be a nice monthly dividend stock for retirement.

Pembina Pipeline

Pembina Pipeline is one of Canada’s largest energy infrastructure companies. It earns contracted income streams that widely cover its dividend. Even when energy prices went negative in 2020, it still paid its dividend.

Pembina has been growing its annual dividend by a low single-digit rate. It has some modest growth coming in the next few years, especially after it finishes its LNG terminal in British Columbia. Overall, it’s a solid bet for steady retirement passive income.

The post Retirement Planning: How to Generate $3,000 in Monthly Income appeared first on The Motley Fool Canada.

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More reading

• TFSA Passive Income: 2 TSX Dividend Stocks to Buy on Dips
• Below Average? How a 70-Year-Old Can Change Their RRSP Income Plan in January
• These Dividend Stocks Are Built to Keep Paying and Paying
• New Year, New Income: How to Aim for $300 a Month in Tax-Free Dividends
• Earn $200/Month in Passive Income That the CRA Can’t Tax

Fool contributor Robin Brown has no position in any of the stocks mentioned. The Motley Fool recommends First Capital Real Estate Investment Trust, Fortis, and Pembina Pipeline. The Motley Fool has a disclosure policy.