TFSA Pension: Enrich Your CPP by $1000/Month With 1 Trusty Dividend Stock

The Inter Pipeline stock is your best option to place in your TFSA and earn $1,000 tax-free monthly income to supplement your CPP during retirement.

A golden egg in a nest

Image source: Getty Images.

Early retirement is nothing more than a dream to many Canadians that most retire at 65. The reason for waiting for the prescribed retirement age is the modest retirement benefits provided by the Canada Pension Plan (CPP).

You can create a separate pension through your TFSA by investing in a trusted dividend stock like Inter Pipeline (TSX:IPL). This energy stock pays a high 7.96% dividend. You could generate $1,000 from the dividends to supplement your CPP.

Create a personal retirement system

Aside from replacing only 25% of your full-time income upon retirement, the government treats it as taxable income. A taxable pension, even with a marginal tax rate, is not favourable. The more money you earn during retirement, the less you’ll receive.

In addition to the tax issue, you have to time your CPP drawdown. If you elect to receive your CPP as early as 60, you’ll incur an annual penalty of 7.2%. You also have the option of deferring until after age 65. There is an 8.4% premium for every year of delay.

Although the CPP will pay you inflation-adjusted money for a lifetime, you don’t know exactly how many more years you will live. You should therefore ideally need at least 50% of your previous working income to get by during the retirement years.

For this reason, you must seek alternative sources of retirement income. By creating a personal retirement system via the TFSA, you can already address the limitations of the CPP.

Inter Pipeline is one of the eleven members of the Canadian Energy Pipeline Association (CEPA). As a CEPA member, this $9.11 billion oil and gas pipeline company is fully committed to delivering natural gas and crude oil produced in Canada to markets across North America.

Although Inter Pipeline is smaller compared with the likes of Enbridge and Pembina, the stock is a surprisingly good source of dividend income. For the last 10 years, the company has increased its dividend. This history shows Inter Pipeline’s commitment to long-term dividend growth.

Retirees prefer Inter Pipeline because of its low-risk business model. The client base consists of investment-grade customers. Also, 80% of revenue comes from inflation-adjusted, commodity-insulated, and long-term contracts which make the dividends safe.

Inter Pipeline is constructing a polypropylene facility for making highly recyclable plastics. This facility is the next growth driver when it comes online within two to three years. Cash flow could increase by 30% and pave the way for a potential capital gain as well as a dividend increase.

End your retirement worries

Retirees and would-be retirees who hold $150,000 worth of Inter Pipeline in their TFSAs are already receiving $1,000 monthly. You can aim for the same monthly earnings to supplement your CPP. The key is to start saving as early as possible and accumulate many shares of this pipeline stock.

While the CPP can only provide you with modest income, Inter Pipeline can be your primary source of retirement income, and you can live off from the dividends for the rest of your life.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Christopher Liew has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Enbridge. The Motley Fool recommends PEMBINA PIPELINE CORPORATION. Pembina Pipeline is a recommendation of Dividend Investor Canada. Enbridge is a recommendation of Stock Advisor Canada.

More on Dividend Stocks

Hands holding trophy cup on sky background
Dividend Stocks

3 of the Top Dividend Stocks in Canada

Top TSX dividend stocks are still on sale.

Read more »

man touches brain to show a good idea
Dividend Stocks

Pembina Vs. Brookfield Renewable: Which High-Yield Dividend Stock Is Better?

Both Pembina Pipeline (TSX:PPL) and Brookfield Renewable Partners (TSX:BEP.UN) look like strong dividend stocks, but is one better?

Read more »

Pile of Canadian dollar bills in various denominations
Dividend Stocks

Invest $20,000 in 2 TSX Stocks for $863/Year in Passive Income

Shares of these two fundamentally strong Canadian companies can help you start a worry-free passive-income stream.

Read more »

Dividend Stocks

The Best Canadian Stocks to Buy With $1,000 Right Now

If there are just three Canadian stocks you can pick up with $1,000, make them these three. All have dividends…

Read more »

Growing plant shoots on coins
Dividend Stocks

2 Incredible Dividend Growers to Buy Hand Over Fist in July 2024

These two top Canadian dividend stocks, with solid track records of raising dividends, look really attractive to buy right now…

Read more »

sale discount best price
Dividend Stocks

3 Discounted Stocks to Track in July 2024

Not all discounted stocks are worth buying right away. You have to watch many of them to recognize the trend…

Read more »

The TFSA is a powerful savings vehicle for Canadians who are saving for retirement.
Dividend Stocks

How to Use a TFSA to Earn $250 per Month in Tax-Free Passive Income

Looking for long-term growth in your TFSA? Here is exactly how to create the perfect passive income portfolio, and where…

Read more »

Hand writing Time for Action concept with red marker on transparent wipe board.
Dividend Stocks

3 Reasons to Buy CAPREIT Stock Like There’s No Tomorrow

CAPREIT (TSX:CAR.UN) has proven its worth time and again. And after strengthening its portfolio, it could be time to pick…

Read more »