Let’s say retirement has finally knocked on your doors, and it is time to relax and pursue your hobbies. Have you applied for your Canada Pension Plan (CPP)? While the calculation is different for every individual, you can get an average payout of around $817/month in 2023.
The gap between CPP and expenses
With CPP, the Canada Revenue Agency (CRA) determines where to invest and your payout. The $817 monthly CPP is insufficient in a high inflationary environment. Plus, you have to add the amount to your taxable income. The CPP was not designed to replace your income but to meet basic needs when your working income ends. You can take charge and boost your CPP payout without boosting your taxes.
How to boost your CPP pension
All your life savings are in registered savings accounts. The portfolio that you built in your Tax-Free Savings Account (TFSA) can now earn extra passive income. The market is currently in a bearish momentum. Instead of being skewed toward growth stocks, it is time to pull out money from some growth stocks and invest in dividend stocks.
For instance, John has a TFSA portfolio of $120,000, of which 70% is in growth stocks and 30% is in dividend stocks. John has opted for dividend-reinvestment (DRIP) to compound his returns. Let’s say it is time to end the DRIP and start collecting dividends. As for the 70% invested in growth stocks, you can shift 30-40% of this amount to dividend stocks. When transitioning to income-paying stocks, consider cashing out on oil and consumer discretionary stocks, as they might underperform in a weak economy.
Two stocks to boost the CPP payout
Now that you have cash in your TFSA, invest it in high-paying dividend stocks like BCE (TSX:BCE) and TC Energy (TSX:TRP). They both offer more than a 6% dividend yield. They also have a history of +15 years of dividend growth, which can hedge your passive income against inflation. Let’s take one stock at a time.
BCE stock
The 5G revolution has set the stage for the proliferation of internet-connected devices. The 3G to 4G transition increased internet usage for live streaming and video calling. The transition to 5G will make the internet do physical work like managing traffic, driving cars, real-time security surveillance, and collecting tolls.
As a telecom provider, BCE has installed its fibre network and 5G infrastructure all over Canada. Unlike energy stocks, telecom rates are not regulated. It gives telcos the freedom to determine their packages while staying competitive. BCE got the 5G timing right, as its competitor Rogers Communications spent most of its capital and resources acquiring Shaw Communications.
BCE is enjoying the benefits of its newly deployed infrastructure with a rapid increase in subscriptions. It could help the telco grow its dividend by 5% for another five to 10 years. A $30,000 investment in this stock can add $179 to your CPP and grow it annually.
But the company could pause its dividend-growth temporarily if the financial situation worsens. After all, the company has a high leverage.
TC Energy stock
The pipeline stock is at a sweet spot, trading closer to its lower range and for a good reason. The oil and gas price has declined, but that has nothing to do with the TC Energy stock’s bearishness. It is the out-of-budget Coastal GasLink project. The company bore the extra cost from its profits.
TC Energy’s earnings are on track for a 3-5% dividend growth, as the company aims to bring $6 billion worth of projects into service this year. These projects will contribute to its cash flows, which it will transfer to shareholders.
A $30,000 investment in this stock can add $172 to your CPP and even grow this amount.
Bottom line
The two stocks can boost your $811 CPP to $1,160, and the $350 passive income would be tax free.
