Retirees: How to Supplement Your CPP Pension With TFSA Stocks

The Canadian National Railway is a pretty good TFSA stock in this author’s opinion.

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Are you a Canadian retiree who is finding that Canada Pension Plan (CPP) payments don’t quite cut it to pay for your retirement?

If so, you’re not alone.

The average CPP payout is only $811 per month, which isn’t enough to cover rent in most cities – let alone all of your bills!

If you have a generous employer-sponsored pension, there is a good chance that you’re in decent shape financially. But if you’re relying on CPP alone, you’re probably hurting. Fear not, though, because in this article I will show you how you can supplement your CPP income with TFSA stocks, in four simple steps.

Step 1: Open a TFSA (if you haven’t already)

The first step in supplementing your CPP payments with TFSA stocks is to open a TFSA. The way you do this is simple: you just go to your bank, speak with a financial adviser, sign a few forms, and then you’re done. There are even online apps like WealthSimple that let you open a TFSA without talking to someone!

Step 2: Fund your account

The next step to investing in a TFSA is to fund your account. If you were 18 or older in 2009, you can deposit up to $88,000 in the account today. If you were less than 18 in 2009, then you will have a different amount of contribution room, depending on how many years of space you’ve accumulated, and how much space was added each year. If you’re close to retirement age and never opened a TFSA before, you can throw in $88,000 immediately!

Step 3: Make a short list of stocks

Once you’ve got a TFSA funded, you need to make a short list of stocks you want to invest in. This is a complex process. You could stick to a combination of U.S., global, and Canadian index funds. If you do want to try your hand at individual stock picking, read on, because in the next section, I will explore some stocks that have worked out well for investors over the years.

Step 4: Buy the ones you like

Once you have a short list of stocks to buy, it’s time to buy them! As mentioned, finding good stocks is tough, but generally, it’s a good idea to buy shares in companies with few competitors, in growing industries.

For example, you could consider a stock like the Canadian National Railway (TSX:CNR). This is a stock I held previously. I thought it was getting too pricey, and I invested the money I’d spent on it into Berkshire Hathaway, but I still think it’s a great company. The company’s earnings have grown significantly since I sold it, yet the stock price has barely budged – I’d probably buy it if I were looking to deploy fresh capital today.

CNR stock has a lot of things going for it. It trades at 20 times earnings, which isn’t too expensive. The railway’s earnings grew at 16.5% over the last year, which is above-average growth. It has only one competitor in Canada, giving it an economic moat. Finally, CNR ships $250 billion worth of goods each and every year, making it an indispensable part of Canada’s economy. Invest in CNR and maybe diversify with stocks like Fortis and Berkshire Hathaway, and you should do well.

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 Andrew Button has no positions in Berkshire Hathaway. The Motley Fool recommends Berkshire Hathaway, Canadian National Railway, and Fortis. The Motley Fool has a disclosure policy.

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