The CPP, or Canada Pension Plan, was launched in April 1965 to support Canadians in retirement. Any individual over the age of 18 who works in Canada (with the exception of Quebec) and earns more than $3,500 each year should contribute to the CPP. If you earn less than $3,500, you are exempt from contributing to the CPP.
The amount you receive via the CPP during retirement depends on several factors that include the age at which you start the pension, the amount you contribute each year, and the number of years you contribute towards the plan.
In 2023, the average monthly CPP payout is $760.07, while the maximum payment is $1,306.57. So, on average, retirees earn less than $10,000 via this pension plan which is not enough for most residents.
What is the CPP enhancement?
Introduced in January 2019, the CPP enhancement is designed to increase retirement income for Canadians. The CPP contribution rates began increasing in 2019 and will surge higher through 2025. For instance, if you earn $55,000 each year, your CPP contributions will increase by $128.75 in 2023 compared to 2022.
Until 2019, the CPP replaced 25% of average work earnings. With the recent enhancements, it will replace 33% of average work earnings.
But for Canadians just entering the workforce, increased contributions will be highly beneficial. So, individuals contributing to the CPP for the next 40 years will see an increase of 50% in retirement pension. These enhancements should lower the risk for families who have not saved enough for retirement.
Despite the CPP enhancement, it makes sense for retirees to further diversify their income stream and create multiple cash flows. One low-cost way to achieve this goal is by investing in blue-chip dividend stocks such as Telus (TSX:T) and Royal Bank of Canada (TSX:RY).
Telus stock
Valued at a market cap of $37 billion, Telus is a telecom giant that offers investors a dividend yield of 5.7%. Currently priced at 20.5 times 2024 earnings, Telus is forecast to increase earnings by 9.6% annually between 2023 and 2027.
Due to its vast size and leadership position in Canada, Telus generates predictable cash flows, allowing it to increase dividends each year. The company’s dividends have increased by 13% annually in the last 20 years.
Telus is part of a recession-resistant sector and is a top investment for income investors or for those with a lower risk appetite. Analysts remain bullish on Telus stock and expect shares to gain around 18% in the next 12 months.
Royal Bank of Canada stock
RBC is the largest TSX stock in terms of market cap and is valued at $174 billion. In the last 20 years, Royal Bank of Canada stock has returned 823% to shareholders since July 2003, after adjusting for dividends, easily outpacing the TSX index.
Despite its outsized returns, RY stock is priced at 11 times forward earnings and pays shareholders a yield of 4.3%. The TSX bank stock also trades at a discount of 8% to consensus price target estimates.
The Foolish takeaway
Both Telus and RBC are well positioned to deliver market-beating gains to long-term shareholders. Armed with a solid balance sheet, these two high-dividend stocks should help you supplement your CPP in retirement.
