Creating Retirement Income: A Fixed Payment Strategy

Once you stop working you may want to simplify your investment strategy. Your objective shifts from growing your investment portfolio to generating income. Flat and unpredictable markets, combined with historically low interest rates, can make this a challenging time in terms of creating retirement income.

Creating Retirement Income

One idea for creating a reasonably consistent level of monthly income is with a Monthly Income Fund. These funds have been around for quite some time. They hold a variety of government, municipal and corporate bonds, preferred shares and dividend stocks, and the payments come from a combination of interest and dividends, and sometimes, return of capital.

With these investments, cash flow is based on the number of units you own, not on the market value of the assets.

In non-registered accounts, the distributions can be more tax efficient than interest earned on GICs and bonds. However, keep in mind that there can also be taxable distributions in December (just as in other mutual funds) in addition to the monthly payout amounts.

Comparison of monthly income funds

Monthly income funds are sold by Canadian banks and mutual fund companies, and are also available in ETF versions.

The following chart is a comparison of some funds sold by Canadian banks as well as two popular ETFs.





Annual distribution per unit .29 .36 .72 .51 .36 .62 .60
% yield 4.10 3.29 5.92 3.61 1.77 3.86 5.28
Exp. ratio (MER) 1.57 1.46 1.47 1.20 1.47 0.63 0.56
% stock/bond/cash 52/44 51/40/9 52/44/5 48/49/3 60/36/4 59/41 55/45
5 yr. return 6.3 5.31 3.2 4.95 5.84 5.2 4.17
Price 7.04 10.94 12.15 14.12 20.29 16.04 11.36

Investment risk

Historically, payouts have been consistent. However, sustainability of the monthly payout is the top consideration in selecting a monthly income fund, and the amount of the fixed payments can change.

All the above funds have reduced their distributions at least once since 2007. If the distribution isn’t cut, you may just be getting the return of your own capital (ROC).

When funds use ROC to pump up the payments, the fund will start declining in value, and the payments will be cut even more.

Final thoughts

You could replicate this type of income portfolio on your own by choosing some large cap, dividend-paying stocks (such as financial services, utilities, energy and communications) and REITS, and adding a bond ladder.

As always, do your own research for suitability, and thoroughly read any prospectus of the fund before investing.

Print Friendly, PDF & Email


  1. Denis on July 29, 2016 at 7:38 am

    From Globe and mail 2 years ago when they were gaining in popularity but interesting nevertheless as a retirement option:


  2. Denis Hache on July 29, 2016 at 7:41 am

    Note that ZMI (as per the above article) said then that they implement CC to augment dividend yield. This can add return but also risk.

    Author, does the yield on these thing net of the MER? I haven’t done funds and ETF much in decades.

    • boomer on July 29, 2016 at 6:26 pm

      Thanks Denis. The payment is not reduced by the MER.

  3. Denis on July 29, 2016 at 7:48 am
  4. Wes on July 29, 2016 at 12:01 pm

    Hi Marie,
    Thanks for the article on monthly income investment ideas.
    When I retired almost 3 years ago, I was faced with the challenge of creating enough income to cover for my living expenses in retirement.
    Some kind readers who follow your writings here had suggested to me to check out the articles on this topic on Seeking Alpha site.
    There are many great articles there that help me become an informed DIY investor.
    Your readers might benefit from browsing through the SA site to learn the different investment vehicles to create their monthly investment incomes. Just don’t forget to do your own due diligence and caveat.

    • boomer on July 29, 2016 at 6:32 pm

      Thank you Wes. Interested readers can browse the articles at

      • Denis on July 30, 2016 at 5:37 am

        Seeking Alpha do have many good writers but beware, a lot of BS on there.

        • Wes on July 30, 2016 at 10:27 am

          Agree with you Denis. Many contributors there are writing their articles to advertise for their products and services. But there are others who are retired and near retirements writing in with their own investment adventure. Their methodologies of stock selection are a great source for your own investment portfolio(s). Yes, you have to do your own due diligence and set your own requirements in selecting the stocks that you would like to have in your portfolio. I have no financial or investment background, the SA site is a great source of my learning process, best of all the articles are free.

  5. cannew on July 29, 2016 at 6:27 pm

    “Your objective shifts from growing your investment portfolio to generating income.”

    Thankfully I learned long ago that during my accumulation mode, Income Growth should be my focus not growing the portfolio. 100% DG stocks, no bonds, mutuals, preferreds, GIC, or etf’s.

    Now that I’ve been retired for 9 years, my income is still growing, as is the portfolio, though I don’t monitor its value.

    • Wes on July 30, 2016 at 10:36 am

      cannew, in today’s low interest return on fixed income investments one cannot afford not to take a risk in investing in good quality DG stocks. Like you, I am also 100% in all my portfolios ( RIF, TFSA and OPEN ).

Leave a Comment

Join More Than 10,000 Subscribers!

Sign up now and get our free e-Book- Financial Management by the Decade - plus new financial tips and money stories delivered to your inbox every week.