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Baby Boomers: Can You Live on JUST Your OAS and CPP Pension?

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Retirement life is tough if you don’t have enough financial resources. Baby Boomers, the largest generation in history, should take note. In Canada, the Old Age Security (OAS) and the Canada Pension Plan (CPP) pension are becoming increasingly important because the number of senior citizens is growing.

In 2020, would-be retirees are looking at an average combined monthly payout of $1,286.40. The maximum OAS monthly benefit is $613.53, while the average CPP monthly payout is $672.87. With this amount, can you live on just the OAS and CPP pension?

If the amount appears inadequate to you, the most suitable remedy is to create another source of income. Investing in your Tax-Free Savings Account (TFSA) is the fastest way to create other income to supplement your OAS and CPP pension. More important, your future earnings are tax-free.

You can opt to invest in an energy stock Vermilion Energy (TSX:VET)(NYSE:VET) or a bank stock like Bank of Montreal (TSX:BMO)(NYSE:BMO) or BMO.

High-yield energy stock

Vermilion is popular among income investors because this $3 billion oil and gas E&P company is a generous dividend-payer. At present, this stock pays a mind-boggling 14.24% dividend. The earnings from a $108,400 investment ($15,436.16) can approximate the yearly payout of the OAS and CPP pension.

Since 2018, Vemilion has maintained this high yield, which is an incredible feat. However, the company has been feeling the pinch over the last couple of years. Some analysts are worried that a dividend cut is possible. If it happens, it would be a deep cut.

Vermilion could face a $205 million cash deficit in 2020. The company would lose financial flexibility. Similarly, the high debt level and lack of assets to sell could compound the problem.

In late January 2020, Vermilion’s CEO Anthony Marino said it is economically warranted for the company to pay a high yield. However, a dividend trap is a threat to would-be investors.


A safer bet for Baby Boomers is Bank of Montreal, although the dividend is only 29.24% of what Vermilion pays. Nonetheless, you’ll be investing the first Canadian company ever to pay dividends. The practice has been going on for the last 191 years.

The 4.19% yield is respectable given that BMO is a blue-chip company and the fourth-largest lender in Canada. A $100,000 investment can produce $4,190 in annual passive income. For the last two decades, the stock’s total return is 875.33%.

In its first-quarter 2020 earnings report, BMO’s capital-markets division saw a 39% surge ($356 million), which offset the 20% decline in the U.S. lending business.

There was also a 17% increase in underwriting and advisory fees and trading revenue. BMO credits the improving markets for the profit boost.

You’ll pay a higher premium for BMO ($94.23 per share) versus Vemilion’s $13.56 share price. Weigh your options before choosing between the two dividend stocks.

Comfortable retirement

People are living longer, and therefore, your savings or retirement fund should be able to stretch farther than before. Thus, Baby Boomers can live comfortably in retirement if there is income outside the OAS and CPP pension.

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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.

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