Are you a pensioner relying on nothing but CPP and OAS to get by?
If so, I don’t need to tell you that it’s a tough place to be.
CPP only pays $679 a month on average, and even the maximum possible benefit is just barely over $1,000.
$679 in CPP plus $600 or so in OAS isn’t enough to live on. According to the Sun Life Retirement Now report, Canadian retirees have about $2,600 a month in expenses. Even the maximum CPP and OAS monthly payments combined don’t cover that.
If you’re lucky enough to have an employer sponsored pension, you may be in better shape than most. But for the average Canadian, having to gradually eat away at savings—or work into old age—seems inevitable.
But it doesn’t have to be. By investing your savings in income-producing investments, you can generate a passive income stream that supplements your CPP and OAS payments. In fact, it’s possible to supplement your pension income with self-chosen investments that you don’t even need to pay taxes on. Here’s how.
Hold dividend stocks in a TFSA
The Tax-Free Savings Account (TFSA) is one of the most underrated retirement savings vehicles available.
Although it’s not specifically designed with retirement in mind, it has certain benefits that make it just as good as an RRSP—in fact, in some situations, even better.
RRSPs are great if you’re playing the long game, stashing away money over the decades. However, there’s no point to starting a new RRSP if you’re already retired, as the number of years of tax-free growth before mandatory withdrawals kick in will be negligible.
Not so with TFSAs! TFSAs do not have mandatory withdrawals, and when you do withdraw, you don’t pay any tax on the money. So if you’re already retired, you can stash up to $69,500 into your TFSA, invest it in high-yield dividend stocks, and begin withdrawing the proceeds whenever you like.
What to buy
If you’re interested in supplementing your CPP and OAS payments with TFSA dividend stocks, Enbridge Inc (TSX:ENB)(NYSE:ENB) would be a good place to start.
With a 6.24% dividend yield, it could pay you $4,331 a year tax-free if you put your entire $69,500 worth of TFSA contribution room into it.
Enbridge has a number of features that make it an excellent income play.
For one thing, it’s a high growth company, having increased its earnings from $250 million to $2.8 billion over the course of four years.
For another, it has excellent dividend growth (17% a year on average), so that 6.24% yield could turn into a much higher yield-on-cost over time.
Finally, the company is pursuing a number of new growth projects, such as the Line III replacement and the Line V tunnel, that could send earnings even higher.
By investing your TFSA in a high-yield dividend stock like ENB, you could generate a good few thousand a year in extra retirement income. Alternatively, you could invest your TFSA in low-fee index ETFs like the iShares S&P/TSX 60 Index Fund, if you’re not comfortable betting the barn on an individual stock.
