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Investments for Retirees in Canada: GICs, Bonds, Dividend and Balanced ETFs

Updated

Once you stop working, investments have two jobs: paying income now and keeping up with inflation over a retirement that can last 25 years or more. This page covers the main choices, how they are taxed and where to hold them. It is part of the retirement income hub; asset allocation by age covers the stock and bond mix.

The main choices

InvestmentMain riskProtection
GICs and high-interest savingsInflation; locked in until maturity (GICs)CDIC up to $100,000 per category per member institution
Bond ETFsPrices fall when interest rates riseNone (market investment)
Dividend ETFsStock market falls; concentration in a few sectorsNone
Covered call ETFsStock market falls; gains are capped in strong marketsNone
Balanced ETFsStock market falls, cushioned by the bond shareNone
Life annuitiesInflation, unless indexed; the money can’t be taken backAssuris, for insurer failure

GICs and savings accounts

The Canada Deposit Insurance Corporation (CDIC) insures eligible deposits at its member institutions if one fails, up to $100,000 per coverage category, principal and interest included, so deposits in more than one category can be covered for more in total. Each member institution has its own separate coverage. Term deposits, including GICs, are eligible (CDIC's example is a GIC with an original term of seven years), but an index-linked term deposit is insurable only if the principal is fully repayable (at maturity or otherwise). CDIC protects eligible deposits in Canadian and foreign currency for up to $100,000 (Canadian dollars) in each insurance category. What else is and isn’t covered is on CDIC deposit insurance.

A GIC ladder splits savings across GICs maturing in different years (for example a fifth each in one- to five-year terms); each year one matures and can be spent or reinvested at the five-year term. GIC laddering explains it and best GIC rates lists current rates.

Bond, dividend and covered call ETFs

ETFTypeDistribution yieldMER
BMO Aggregate Bond Index (ZAG)Canadian bonds3.46%0.09%
Vanguard Canadian Aggregate Bond (VAB)Canadian bonds3.60%0.08%
Vanguard FTSE Canadian High Dividend Yield (VDY)Canadian dividend stocks2.97%0.22%
iShares S&P/TSX Composite High Dividend (XEI)Canadian dividend stocks3.44%0.22%
BMO Canadian Dividend (ZDV)Canadian dividend stocks2.71%0.39%
BMO Covered Call Canadian Banks (ZWB)Bank stocks with call options6.79%0.72%
BMO Covered Call Utilities (ZWU)Utility stocks with call options7.39%0.71%

Distribution yields from the issuers’ fund pages, as of September 30, 2026 for VAB and VDY and August 31, 2026 for the others; they change as prices and payouts change. A covered call ETF pays more because it sells away part of the upside, so it tends to lag the plain stocks in a strong market. Best dividend ETFs, best bond ETFs and covered call ETFs compare more funds.

Balanced ETFs

One fund holds a fixed stock and bond mix and rebalances automatically:

ETFStocksMER
Vanguard Balanced (VBAL)60%0.22%
iShares Core Balanced (XBAL)60%0.18%
Vanguard Growth (VGRO)80%0.22%

Withdrawals then come from selling units as needed, rather than from distributions alone.

How the income is taxed

Outside a registered account, the type of income matters:

IncomeTax
Interest (GICs, savings, bond ETF distributions)Fully taxable each year
Canadian eligible dividendsGrossed up, then reduced by the dividend tax credit
Capital gainsHalf taxable, when you sell

Dividends also count for the OAS recovery tax and the GIS at their grossed-up or adjusted amounts; dividend investing in retirement works through the effects.

Which account to hold it in

  • TFSA: Income earned in a TFSA and TFSA withdrawals don't reduce federal benefits such as OAS, GIS and EI, or credits such as the Canada child benefit, the Canada workers benefit and the Canada Groceries and Essentials Benefit (formerly the GST/HST credit). Interest-paying investments gain the most from the shelter.
  • RRSP or RRIF: Under Article XXI of the Canada-US tax treaty, US dividends paid to an RRSP or RRIF are exempt from US withholding; in a TFSA, FHSA, RESP or taxable account the standard 15% treaty rate applies, and only in a taxable account can it be recovered as a foreign tax credit.
  • Non-registered: Canadian dividends get the dividend tax credit and only half of capital gains is taxed.

Annuities

A life annuity turns part of your savings into guaranteed income for life. The annuity calculator and annuity vs RRIF cover how they work and when they fit.

Sources

The figures and rules on this page come from these sources, last checked against them between September 25, 2026 and October 24, 2026. How we check facts.