If you are close to retirement and are worried pension plans such as the CPP (Canada Pension Plan) and OAS (Old Age Security) are not enough to cover expenses, you are not alone. The maximum monthly CPP amount in 2023 is $1,306.57, while the maximum OAS payout is even lower at $698.60.
Moreover, the rising cost of debt and elevated inflation levels have also lowered the purchasing power of individuals in Canada. According to HOPP (Healthcare of Ontario Pension Plan), around 44% of Canadians could not add to retirement savings in the last year, an increase of 6%.
While Canadians are struggling to save for retirement, there are some troubling trends for those in the age group between 55 and 64:
- 44% of respondents have less than $5,000 in savings
- 75% have less than $100,000 in savings
- Around 20% of workers have not set aside anything for retirement
“In the five years that HOOPP and Abacus Data have conducted this survey, about 70% of Canadians have consistently agreed that Canada is heading for a retirement income crisis,” said David Coletto, chief executive officer of Abacus Data. “These findings for older Canadians suggest a crisis might be looming ever closer if current economic trends continue.”
Canadians who have an employer-sponsored pension plan can still benefit from generous payouts in retirement. But for employees part of the private sector, it’s quite risky to rely on just the CPP and OAS, which need to be supplemented with other passive-income streams.
Buy dividend ETFs in a TFSA and supplement your CPP
Several Canadians associate the RRSP, or Registered Retirement Savings Plan, with long-term savings. Any contributions made toward the RRSP will allow individuals to lower their tax bills significantly, making it ideal to hold blue-chip stocks or dividend ETFs (exchange-traded funds).
However, the TFSA (Tax-Free Savings Account) is another registered account that can be used to buy and hold quality dividend stocks. Any income earned in a TFSA in the form of interests, capital gains, or dividends is sheltered from Canada Revenue Agency taxes.
Unlike the RRSP, you can easily withdraw funds from the TFSA at any time in case of any financial emergencies. So, for those looking to boost retirement savings in a TFSA, dividend ETFs can help you create a stable stream of passive income at a low cost.
Investing in ETFs has several benefits providing you with exposure to a basket of stocks across various sectors at a low cost which also lowers overall risk.
One such ETF that trades on the TSX is iShares S&P/TSX Canadian Dividend Aristocrats Index ETF (TSX: CDZ). The CDZ offers shareholders exposure to a portfolio of quality Canadian dividend-paying companies. It screens for large, established entities that have increased dividends each year for at least five consecutive years.
What are the top TSX stocks in this dividend ETF?
With a monthly payout frequency, the CDZ ETF offers investors a dividend yield of 3.9%. The top holdings of the ETF include companies such as Aecon Group, Chartwell Retirement Residences, Great-West Lifeco, Power Corporation, and Fiera Capital, which account for 12% of the fund.
The financial sector accounts for 30.63% of the ETF, followed by industrials and energy at 11.66% and 10%, respectively.
