The 2 Best Monthly Income ETFs for Canadian Retirees

Many retirees approach investing through a mental accounting lens when it comes to total returns. A steady monthly distribution feels tangible and reassuring, even though, mechanically, a fund’s net asset value drops by the same amount on the ex-distribution date. Economically, receiving a distribution and selling your own shares for income are equivalent. In practice, many retirees strongly prefer the former.

I am past the point of trying to correct that preference. Instead, I look at it from a harm-reduction perspective. If you are going to use a monthly income ETF, you can still improve outcomes by sticking to the basics: low expense ratios, simple portfolio construction, passively managed underlying holdings, and avoiding gimmicks such as leverage or covered calls

The more sensible options also tend to use a managed distribution policy, typically targeting a yield in the 4% to 6% range. In this context, a managed distribution policy means the ETF sets a reasonable income target and funds it through a mix of portfolio dividends, bond interest, realized capital gains, and modest return of capital when needed to smooth payments over time.

With that framework in mind, here are two monthly income ETFs from Vanguard Canada and BMO Global Asset Management that I think are well suited for Canadian retirees.

Vanguard Retirement Income ETF Portfolio (VRIF)

VRIF is explicitly designed for retirees. It even says “retirement” in the name. Within Vanguard Canada’s asset allocation lineup, this fund tends to get overlooked.

Most attention usually goes to the higher-growth options such as the all-equity and 80% equity ETFs, or even the more balanced 60/40 solutions. VRIF sits quietly at the conservative end of the spectrum, but that is exactly where many retirees actually need to be.

VRIF is an actively managed solution, with an important caveat. The active decision-making happens at the portfolio allocation level, not through security selection. The underlying holdings are index ETFs.

The objective is to deliver a 4% annualized distribution, funded through a combination of equity dividends, bond interest, realized capital gains, and return of capital when needed to smooth payments.

The allocation itself can move over time, but it has remained conservative in practice. At present, the portfolio is roughly 67% fixed income and 33% equities.

As you would expect from Vanguard, the exposure is globally diversified and built entirely from index-based building blocks.

On the bond side, the fund holds Canadian aggregate bonds, Canadian corporate bonds, U.S. aggregate bonds, and global aggregate bonds outside the U.S.

The equity sleeve includes Canadian all-cap equities, U.S. total market equities, developed markets outside North America, and emerging markets.

This structure makes VRIF a reasonable option for older investors who are already in the drawdown phase and want to put their portfolio on autopilot.

The main drawback in my opinion is the distribution level. A 4% target is sensible from a sustainability standpoint, but it can fall short of the minimum withdrawal requirements for a Registered Retirement Income Fund as those percentages rise with age. If Vanguard were to improve one thing, that would likely be the income target.

The management expense ratio is 0.32%. It is competitive relative to older monthly income ETFs from iShares, though it is higher than Vanguard’s more growth-oriented asset allocation ETFs. Ideally, that fee would be closer to 0.24%, which would better reflect Vanguard’s broader pricing philosophy.

BMO Balanced ETF Fixed Percentage Distribution Units (ZBAL.T)

Rather than launching a separate retirement income ETF, BMO simply took its existing lineup of asset allocation ETFs, selected those most suitable for retirees, and added a fixed distribution version. These can be identified by the “.T” suffix at the end of the ticker.

In this lineup, ZBAL.T stands out as the most appropriate option for retirees. It is built on a classic 60% equity and 40% fixed income allocation, but pays out a 6% annualized distribution.

The key point is that nothing about the underlying portfolio changes. There are no active management overlays, no option strategies, and no leverage.

For all practical purposes, ZBAL.T is the same ETF as the standard ZBAL, which pays quarterly distributions. The difference is that ZBAL.T uses realized capital gains and return of capital, when necessary, to maintain a steady 6% distribution with monthly payouts.

That structure makes it a good fit for retirees who would otherwise hold a traditional 60/40 portfolio but are uncomfortable selling shares to fund withdrawals. ZBAL.T handles that process in a mechanical and disciplined way, removing the need for ad hoc decisions during market stress.

The underlying holdings are straightforward. On the fixed income side, the portfolio includes Canadian discount bonds, which are relatively tax efficient, along with U.S. aggregate bond exposure.

On the equity side, the fund holds broad market exposure through the S&P 500, the S&P TSX Composite Index, the MSCI EAFE Index, and the MSCI Emerging Markets Index, with small allocations to U.S. mid-cap and small-cap stocks to round out diversification.

One feature I particularly like is pricing. ZBAL.T does not charge a premium for the income feature. The expense ratio remains a very competitive 0.20%, identical to the non-income version. For retirees who want simplicity, predictable cash flow, and low costs, that combination is hard to ignore.