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6 Best ETFs for Retirement Income in Canada in 2023

For many Canadians, thinking about retirement can be bittersweet. The prospects of relaxing and not having to work are often overshadowed by concerns about financial stability. 

This is why it is important to set yourself up early with long-term investments. By the time you retire, your investments will ideally provide enough income for a comfortable life. 

Building a retirement ETF portfolio is one way to safely invest your money for long-term growth. With over 700 ETFs listed on the TSX, it can be a challenge to choose the best ETFs for retirement income in Canada. 

Whether you are just starting out in the workforce or nearing the end of your career, it is never too late to begin investing for your retirement. Here are some of the best retirement ETFs in Canada in 2023.

Best ETFs for Retirement Income in Canada

All facts and figures are accurate as of December 2022:

1. iShares S&P/TSX Canadian Dividend Aristocrats Index ETF

Here are some key facts about this ETF:

  • Ticker Symbol: CDZ.TO
  • Inception Date: September 8, 2006
  • Number of Holdings: 94
  • MER: 0.66%
  • Assets Under Management: $984 million
  • Distribution yield: 4.15%
  • Distribution frequency: Monthly

The name of this ETF says it all. CDZ is one of the best Canadian dividend ETFs on the market and offers investors a solid 4.15% yield that pays monthly dividends to shareholders. 

This fund holds 94 of the top dividend-paying stocks in Canada. The five stocks with the highest allocation are Slate Grocery REIT (SGR.UN), Pembina Pipeline Corp (PPL.TO), Keyera Corp (KEY.TO), Enbridge Inc (ENB.TO), and Capital Power Corp (CPX.TO).

Since its inception, CDZ has provided an average annual return of 6.74%. It has a relatively high MER at 0.66%, which means for every $1,000 you have invested, the fee is $6.60. 

2. Vanguard FTSE Canadian High Dividend Yield Index ETF 

Here are some key facts about this ETF:

  • Ticker Symbol: VDY.TO
  • Inception Date: November 2, 2012
  • Number of Holdings: 47
  • MER: 0.22%
  • Assets Under Management: $1.87 billion
  • Distribution yield: 4.15%
  • Distribution frequency: Monthly

VDY is a Vanguard retirement ETF that is extremely popular amongst Canadian investors. Why? It offers the same 4.15% monthly dividend yield as CDZ but has a much lower MER at 0.22%. 

This ETF is also much more concentrated, with only 47 holdings. The top five weighted holdings in VDY are the Royal Bank of Canada (RY.TO), Toronto-Dominion Bank (TD.TO), Enbridge, Inc (ENB.TO), Bank of Montreal (BMO.TO), and Canadian Natural Resources (CNQ.TO)

This Vanguard fund is heavily weighted on financial stocks with a 55.1% allocation. Since its inception, VDY has provided investors with an average annual return of 9.66%. 

3. iShares S&P/TSX 60 Index ETF

Here are some key facts about this ETF:

  • Ticker Symbol: XIU.TO
  • Inception Date: September 28, 1999
  • Number of Holdings: 60
  • MER: 0.18%
  • Assets Under Management: $11.1 billion
  • Distribution yield: 3.09%
  • Distribution frequency: Quarterly

XIU is one of the most popular ETFs in Canada, with over $11 billion in assets under management. This iShares retirement ETF tracks the benchmark TSX 60 with an attractively low MER of just 0.18%.

Similar to the American S&P 500 index, the TSX 60 tracks the 60 largest companies in Canada. The heaviest-weighted stocks are the Royal Bank of Canada (RY.TO), Toronto-Dominion Bank (TD.TO), Enbridge, Inc (ENB.TO), Canadian Nationa Railway (CNR.TO), and Canadian Pacific Railway (CP.TO)

Not surprisingly, this ETF has a 34.38% allocation to financial stocks and an 18.05% allocation to energy stocks. These are two of the largest sectors on the TSX. 

4. iShares S&P/TSX Composite High Dividend Index ETF 

Here are some key facts about this ETF:

  • Ticker Symbol: XEI.TO
  • Inception Date: April 12, 2011
  • Number of Holdings: 75
  • MER: 0.22%
  • Assets Under Management: $1.3 billion
  • Distribution yield: 4.91%
  • Distribution frequency: Monthly

XEI is yet another iShares retirement ETF for Canadian investors. This ETF provides exposure to some of the best dividend-paying stocks in Canada with a very low MER of 0.22%.

Compared to other high-dividend ETFs, XEI’s highest sector allocation is to energy stocks and not financials. The top holdings are Canadian Natural Resources (CNQ.TO), Suncor Energy Inc (SU.TO), the Royal Bank of Canada (RY.TO), Toronto-Dominion Bank (TD.TO), and Enbridge, Inc (ENB.TO)

On an average annual basis, XEI has returned 7.06% to investors. Considering how low the fees are for this ETF, you can argue it is the best iShares ETF for retirement in Canada

5. BMO Canadian High Dividend Covered Call ETF

Here are some key facts about this ETF:

  • Ticker Symbol: ZWC.TO
  • Inception Date: February 9, 2017
  • Number of Holdings: 111
  • MER: 0.72%
  • Assets Under Management: $1.5 billion
  • Distribution yield: 6.64%
  • Distribution frequency: Monthly

ZWC is one example of a Canadian-covered call ETF. These funds sell covered calls on the holdings in the portfolio and pay the premium earned as dividends to shareholders. 

The top holdings in ZWC are Enbridge Inc (ENB.TO), Toronto-Dominion Bank (TD.TO), the Royal Bank of Canada (RY.TO), Bank of Nova Scotia (BNS.TO), and BCE Inc (BCE.TO)

Covered Call ETFs are great for retirement due to the high cash flow every month. Remember that your capital growth is limited due to the high fees these funds have. 

6. Vanguard U.S. Dividend Appreciation Index ETF 

Here are some key facts about this ETF:

  • Ticker Symbol: VGG.TO
  • Inception Date: August 2, 2013
  • Number of Holdings: 289
  • MER: 0.30%
  • Assets Under Management: $1.02 billion
  • Distribution yield: 1.27%
  • Distribution frequency: Quarterly

Looking for some exposure to US dividends tocks? This Vanguard retirement ETF holds 289 of the best US dividend-paying companies on the market. With a very reasonable 0.30% MER, this allows you to invest in American stocks without paying foreign exchange fees.

VGG has a 21.7% allocation to the Industrials sector and a 15.4% allocation to Financials. The five largest weighted stocks in VGG are UnitedHealth Group (NYSE: UNH), Johnson & Johnson (NYSE: JNJ), Microsoft Corp (NASDAQ: MSFT), JPMorgan Chase & Co. (NYSE: JPM), and Procter & Gamble Co. (NYSE: PG)

While it might seem like a lower dividend yield, VGG also provides capital growth through its stock holdings. Since its inception, VGG has returned a market-beating 13.80% on an average annual basis. 

What to consider when choosing retirement income ETFs

Regarding the best retirement ETFs in Canada, dividends and distributions are your best friend. Look for a higher dividend yield that is sustainable and pays out on a quarterly or even monthly basis. 

As with any ETF, choosing the fund with the lowest MER will drastically increase your gains over the long term. If you see two ETFs with similar holdings, it pays to invest in the fund with a lower MER. 

Where to hold retirement income ETFs 

It used to be that everyone would hold investments in their RRSPs. While this is still true, for many Canadians, the TFSA may be the preferred way to invest. 

Choosing the best ETF for a TFSA can be fairly simple. Since any dividends or capital gains are not taxed in a TFSA, it makes sense to choose the highest dividend-paying ETFs. Also, consider ETFs that can provide a balance of both capital growth and long-term dividends. 

The best ETFs for RRSPs will be similar, except that, in the end, you are taxed on any capital gains or dividends when you withdraw funds in retirement.

Obviously, you want the most growth possible for your wealth, but there are definitely situations where it makes sense to maximize your TFSAs first!

How to buy retirement income ETFs in Canada

Our top choice for a trading platform to buy stocks and ETFs in Canada is Questrade. It offers commission-free ETF purchases, and you pay low fees for stock trades.

Questrade offers a $50 trade credit when you fund your account with $1,000 or more.

Questrade

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On Questrade’s Website

  • Fees: Buy ETFs commission-free and stocks at $0.01 per share
  • Account minimum: $1,000 to start trading
  • Promotions: Get $50 in free trades
SNC Rating
4.7
  • Choose from thousands of stocks and ETFs with commission-free ETF purchases and low-commission stock trading.
  • Supports multiple investment products, including stocks, ETFs, mutual funds, bonds, GICs, options, and precious metals.
  • No minimum balance to open a new account and only $1,000 to start trading.
  • Open a Questwealth portfolio to invest in a pre-built portfolio with 0.20% to 0.25% management fees.
  • No quarterly inactivity fees for all accounts. Transfer fees are waived up to $150 when you transfer your accounts at other brokerages to Questrade. Annual fees for TFSA or RRSP accounts and no account transfer fees either.
  • Unlimited snap quotes for stocks and ETFs with the option to upgrade to real-time quotes through a monthly subscription starting at $19.95/month.
  • Real-time customer support via talk, email, or live chat.
  • Enjoy extended hours trading on U.S. Markets from 7:00 AM to 8:00 PM EST.
  • QuestMobile allows you to manage your investments from any mobile device.
  • Gain access to other Questrade financial tools, including QuestMortgage.
  • Trust in one of Canada’s top brokerages with over $30 billion in assets under administration.

Our Verdict

Questrade is Canada’s largest and oldest discount brokerage. It offers accounts and financial tools for investors of all experience levels. Commission-free ETFs allow you to generate long-term wealth through diversified exposure to global equities while saving on trading fees.

Access to multiple investment assets

Offers real-time market data for day traders

No commissions on ETF purchases

Highly-rated mobile app

Advanced charting and analytical tools are available

Minimum $1,000 balance to trade

Advanced data packages have a monthly fee

Trading fees apply to all stock trades

FAQs

Where should I invest my money in retirement? 

Investing your money into ETFs in retirement is a great way to provide steady income through dividends. It is also an excellent way to protect yourself against potential market volatility. 

How much money do you need to retire with $100,000 annually? 

It all depends on how you invest your money before retirement, but they say you will need about $2 million to retire with $100,000 annually. 

Are ETFs good for generating retirement income?

Yes, ETFs can be a great way to generate retirement income. While they do come with fees, ETFs are typically less volatile than investing in individual stocks and pay consistent dividends to investors. 

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Author

Gravatar for Enoch Omololu, MSc (Econ)
Enoch Omololu, MSc (Econ)

Enoch Omololu is a personal finance expert and a veterinarian. He has a master’s degree in Finance and Investment Management from the University of Aberdeen Business School (Scotland) and has completed several courses and certificates in finance, including the Canadian Securities Course. He also has an MSc. in Agricultural Economics from the University of Manitoba and a Doctor of Veterinary Medicine degree from the University of Ibadan. Enoch is passionate about helping others win with their finances and has been writing about money matters for over a decade. He has been featured or quoted in The Globe and Mail, Winnipeg Free Press, Wealthsimple, CBC News, Financial Post, Toronto Star, CTV News, Canadian Securities Exchange, Credit Canada, National Post, and many other personal finance publications. You can learn more about him on the About Page.

His top investment tools include Wealthsimple and Questrade. He earns cash back on purchases using KOHO, monitors his credit score for free using Borrowell, and earns interest on savings through EQ Bank.

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