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OAS and CPP Payments Aren’t Enough: Do This to Avoid Clawbacks and Add Monthly Income to Your Retirement

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Unless you live an extremely frugal life or you’re prepared to significantly change your lifestyle during your retirement years, you shouldn’t plan to live off of Old Age Security (OAS) and Canada Pension Plan (CPP) payments.

It’s just not a realistic expectation, which is why many Canadians expect to be working past the age of 65 in order to be able to supplement their income to help pay bills and live comfortably during their old age.

How can you add income and avoid OAS clawbacks at the same time?

One of the deterrents to working too much during retirement is that OAS payments can get clawed back if your earnings become too high. For 2020, that threshold is $79,054.OAS and CPP Payments Aren’t Enough: Do This to Avoid Clawbacks and Add Monthly Income to Your Retirement

But one exception to that is if you earn income inside of a Tax-Free Savings Account (TFSA). Whether it’s capital gains or dividend income, as long as the stock is eligible (e.g., traded on a major exchange like the TSX), the earnings inside of a TFSA are tax-free. That’s why investing in a good dividend stock can be a great way to get around those clawbacks while you add income to your portfolio.

One stock that always stands out as an ideal dividend stock to hold in any TFSA is Shaw Communications Inc (TSX:SJR.B)(NYSE:SJR).

It’s a top telecom company in the country, and with a dividend yield of 4.5%, investors can earn a solid payout from holding the stock in their portfolios. But there are a couple of ways that the stock stands out from others.

The first is that its payouts are made on a monthly basis. Retirees therefore won’t have to wait three months to receive a dividend payment from Shaw.

And although the company hasn’t increased its dividend payments in years, there’s one important reason why investors should be okay with that: Shaw is growing its wireless brand, Freedom Mobile.

The company has an exciting growth opportunity that investors won’t often find with many stable and mature dividend stocks. The additional growth opportunity can help bolster Shaw’s top and bottom lines which could lead to a stronger share price down the road.

That gives investors the opportunity to potentially benefit from capital gains, which would also be tax-free inside of a TFSA and could make up for the lack of dividend growth.

Whether investors choose to continue receiving dividends or prefer to cash out their earnings, including capital gains, either option can help add to income during retirement while avoid triggering an OAS clawback in the process.

Bottom line

Dividend stocks are a great tool and a way for all investors to improve their financial positions whether in retirement or not. By adding dividend income into the mix, retirees will certainly be much better off than just relying on OAS and CPP payments.

And over the long term, Shaw’s a solid dividend stock to invest in as the company is a stable investment that’s only going to keep growing from its organic business as well as through the growth of Freedom Mobile.

Regardless of which stage in life you are, Shaw is a stock that can be a great fit for your portfolio.

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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 David Jagielski has no position in any of the stocks mentioned. 

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