The Old Age Security (OAS) and Canada Pension Plan (CPP) are the only sources of income for Canadians who have zero savings upon retirement. Although you might need more financial cushion to enjoy retirement life to the fullest, both pensions are for life. Some current retirees say it’s difficult to survive with only the OAS and CPP.
Most retirement experts suggest a buffer equivalent to 70% of your pre-retirement income. It should allow you to maintain your current standard of living with only a few adjustments. Assuming you make $70,000 annually today and the combined yearly OAS and CPP is $21,962.88, you’re short by $27,037.12 of the 70%.
Full OAS and maximum CPP
The OAS is available at age 65, not earlier, and the full pension amount is $626.49 monthly (July to September 2021). If you’re eligible to receive the maximum CPP, the monthly payout is $1,203.75 (2021). For individual CPP users who didn’t contribute enough, the monthly pension at age 65 is only $706.57 (January 2021), on average.
Retirement planners say you need more on top of the OAS and CPP because you need to adjust for inflation. Given the estimated figures, there’s a noticeable income gap. Prospective retirees can fill the shortfall with investment income.
Income source no. 1
Dividend stocks are the best sources of passive income. Pembina Pipeline (TSX:PPL)(NYSE:PBA) is a profitable option because it pays a high 6.36% dividend. Furthermore, the payouts of this $21.85 billion pipeline giant are monthly, not quarterly.
Pembina is a revered player in the energy industry owing to the full spectrum of midstream and marketing services. Its competitive advantages are the company’s integrated assets and dependable commercial operations. Pembina also has an established footprint in the country’s oil sands region.
The proposed strategic combination of Pembina (72%) and Inter Pipeline (28%) is something to looking forward to. If the $6.9 billion deal receives the green light, Pembina will be one of Canada’s largest and best-positioned energy infrastructure companies. Analysts see a potential upside of 18.3%, from $39.72 to $47.
Income source no. 2
National Bank of Canada’s (TSX:NA) dividend yield is only 3.05% dividend, but the quarterly dividends should be safe and lasting. The current share price is $93.79, while the payout ratio is less than 40%. Canada’s sixth-largest lender has a market capitalization of $31.65 billion.
Like the Big Five banks, National Bank’s coffers overflow with cash. At the close of Q2 fiscal 2021 (quarter ended April 30, 2021), it has $1.1 billion in excess CET1 capital beyond the 9% regulatory floor. The bank’s net income rose 111.3% to $801 million compared to Q2 fiscal 2020.
Nearly all business segments reported strong growth, while the provision for credit losses (PCLs) dropped significantly. National Bank’s President and CEO Officer, Louis Vachon, said the solid quarterly results were due to the right strategic choices and the bank’s diversified, agile franchise. Based on analysts’ forecasts, the price could hit $109 (+16.2%) soon.
Pay attention to cash flows
Would-be retirees should assess future retirement expenses and push the numbers before making a firm decision. However, it would be best to have other income sources besides the OAS and CPP from a cash flow perspective. If you want higher pensions, consider delaying both until age 70.