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Your CPP Pension Alone Won’t Be Enough to Retire!

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What is enough in retirement? Canadian seniors due for retirement can claim the Canada Pension Plan (CPP) as early as 60 and not wait for age 65. You also have the option to delay until 70 to increase the benefits to 142% of what you would receive at 65.

Understand, however, that even with the CPP enhancements as of 2019, the pension alone won’t be enough to retire. Why? It’s true the CPP will begin to grow, but the pension will replace “only one third” of the average work earnings you receive after 2019.

How your CPP increases

The pension increase depends on how much and for how long you contribute to the enhanced CPP. With the enhancements, the maximum CPP retirement pension will increase by up to 50%, but only for users that make enhanced contributions for 40 years.

Higher CPP contribution rates

From 2019 until 2023, employees’ contribution rate will gradually increase by 1% from 4.95% to 5.95%) on earnings between $3,500 and the original earnings limit ($57,400 ceiling in 2019).

Hereunder are the percentage increases each year from 2019 to 2023:

YEAR Employer/Employee Rate Self-employed Rate
2019 5.10% 10.2%
2020 5.25% 10.5%
2021 5.45% 10.9%
2022 5.75% 11.5%
2023 5.95% 11.9%

Retirement life would not be comfortable or enjoyable with only the CPP. You can add the Old Age Security (OAS) to bump up retirement income. However, you still need to economize or scrimp on a limited budget to survive the sunset years.

Even retirement experts would advise you against relying on government pensions entirely. If you have the opportunity to dedicate a specific amount for savings, do it now. Once you have enough, use the money to invest in income-producing assets like stocks.

There are established dividend payers that can be your source of pension-like income. You’ll have a steady income stream, aside from the CPP and OAS.

Retirees’ wellspring

TC Energy (TSX:TRP) is an example of a core dividend stock for soon-to-be and current retirees. The nature of the business somehow tells you the dividend payouts will endure. This $47.57 billion company moves more than 25% of natural gas people across North America will consume daily.

At a share price of $50.61, the energy stock pays a 6.4% dividend, while the payout ratio is 67.23%. A $50,000 stake will generate $3,200 in income. If you’re building a nest egg, keep reinvesting the dividends. In a 20-year investment horizon, your capital will compound to $ 172,903.21.

Resiliency is one of the compelling reasons retirees invest in TC Energy. About 95% of EBITDA comes from long-term, fixed-rate contracts. Because of this metric, management confidently asserts the company is insulated from short-term price and throughput fluctuations of the underlying commodities.

TC Energy is cementing its industry-leading position. The $8 billion Keystone KL will come online in 2023, while other projects are in advanced development stages. Expect an annual dividend growth of 8% to 10% in 2021 and 5% to 7% in succeeding years.

Ensure financial stability

Retirees would be financially stable by supplementing CPP with investment income. It would be best if you had more to cope with inflation or costs of living, unforeseen spending, and healthcare expenses as you age.

Speaking of the CPP pension's insufficiency as the standalone retirement income...

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