Many Canadians don’t want to risk their retirement portfolios to the uncertainty of the stock market and instead put their money into interest savings structures like GICs to reduce risk and maintain their capital. Others, especially those who have financial planners to guide them, put their money into dividend producing guided stock portfolios.  So, which is better?  Let’s compare the two options and you decide.

Dividend income gets preferential tax treatments in the form of a “dividend tax credit.”  Interest income is taxed the same as ordinary income and is therefore taxed at your marginal tax rate based on where you live in Canada.  It is necessary to figure out the correct multiplier to calculate the additional amount of interest income you would have to earn, to then equate this after-tax interest income to the amount of after-tax income retained from an eligible dividend.

You know I am going to recommend you chose the dividend income strategy; that being said, I also know a lot of older Canadians are worried about the markets and some have little to no tolerance for market swings.  Why not consider talking to your financial planner about a blue-chip dividend portfolio.  It doesn’t hurt to look at other options to make money wisely.  No one wants to pay more taxes than they have to.