Do you have anything beyond the Canada Pension Plan (CPP) and the Old Age Security (OAS)? I need to ask the question because both retirement savings programs serve only as important foundations for retirees. However, the payouts are not likely to cover all your costs during retirement.
Financial planners sound like a broken record. They keep insisting on how dangerous it is to rely on your CPP and OAS when you retire. Heed the warning because it’s true. You need other sources of retirement income to survive.
The actual CPP and OAS payments combined should give you the motivation to invest. For 2020, an individual at 65 years old is due to receive an average of $15,436.8 yearly or $1,286.49 monthly. Are you able to retire with only that amount?
Investing is a must
When you’re planning for retirement, investing is a must. Come retirement, your nest egg should be able to keep up with the cost of living and inflation. Dividend investing, for example, is a fail-safe strategy.
Fail-safe doesn’t mean zero risks, however. In the short term, your money is exposed to market risks. But over the long haul, stocks should provide a healthy financial cushion and hedge against inflation.
Fill the gaping hole
Dividend stocks like Laurentian Bank (TSX:LB) and Capital Power (TSX:CPX) are viable investment options. Laurentian was able to return 507.05% over the 20 years. On the other hand, Capital Power was able to reward investors with 220.94% in the past decade.
The bank stock pays a 6.09%, while the independent power producer (IPP) yields 5.19%. While neither is among the highest dividend-payers, both are capable of generating enough profits to sustain the current yields in the coming years.
Inflation forecasts for Canada in 2020 and 2021 are identical at 1.9%. Hence, would-be investors have a pair of instant protection against inflation.
You should like Laurentian all the more if you know that the stock belongs to the distinguished list of Dividend Aristocrats. Although this financial institution is a regional bank, it offers a broad range of financial products and services like its bigger industry counterparts.
With over 170 years of operations, Laurentian should be a dependable source of investment income. Moving forward, expect the bank to grow its customer base, deposit levels, and loan portfolio.
Capital Power could provide your income needs in retirement without much worry. This $4 billion IPP belongs in a recession-resistant sector. If a company owns and operates power-generating facilities such as natural gas, solar, wind, coal, and solid fuel, you can consider the business model as low risk.
Cash flows should be stable and increasing every passing year. Capital Power is currently transforming into a green power producer. The pipeline is growing amid more growth opportunities.
Similarly, management promised to raise dividends through 2021. With an annual growth estimate of 8.6% in the next five years, Capital Powers should remain a top investment prospect of future retirees.
It’s not wise to assume that the CPP and OAS are enough to sustain a retiree’s financial needs. With other income sources like Laurentian Bank and Capital Power, your retirement should be blissful.
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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.