The maximum payout for a 65-year-old starting the Canada Pension Plan (CPP) payments is $1,306 in 2023. However, if you begin the pension plan at 70, the maximum CPP payouts should increase by 42% to $1,855.
How can you be eligible for the maximum CPP payment?
The amount retirees can receive via the CPP depends on factors such as their salary during employment and the time frame of these contributions. Salaried employees allocate certain amounts to the CPP each month, which depend on the maximum pensionable earnings.
The maximum pensionable earnings threshold for 2023 stands at $66,000. It indicates the CPP premiums will be deducted up to this threshold amount.
So, a person earning over $66,000 annually will benefit from higher CPP payments in retirement compared to an individual earning $55,000 each year.
You can supplement the CPP with dividend stocks
Even if you earn the maximum CPP payment of $1,855, it may not be enough to lead a comfortable life in Canada. According to Spring Financial, the average monthly expense for a single person who rents a house in Canada is close to $3,500.
It’s quite evident you need to supplement your CPP with other sources of income. One low-cost strategy for creating passive income is by investing in blue-chip dividend stocks. Moreover, if these investments are held in a TFSA (Tax-Free Savings Account), returns in the form of dividends and capital gains are exempt from Canada Revenue Agency taxes.
You need to create a portfolio of dividend stocks to lower investment risk. Each of these TSX stocks in your dividend portfolio needs to be armed with strong financials, robust cash flows, and widening earnings. Typically, dividend stocks should increase dividends consistently, allowing you to benefit from a higher effective yield over time.
Royal Bank of Canada is a top dividend stock
One of the most popular dividend stocks on the TSX is Royal Bank of Canada (TSX:RY), which offers you a forward yield of 4.5%. Despite a sluggish macro-environment, RBC increased adjusted net income by 11% to $4 billion in the fiscal third quarter (Q3) of 2023 (ended in July). Its adjusted earnings also rose by 11% to $2.84 per share.
The company explained its profit margins widened due to higher sales in the Capital Markets segment, higher net interest income, and strong volume growth in the Canadian banking business. These factors were offset by higher operating costs amid elevated inflation levels.
RBC ended Q3 with a common equity tier-one capital ratio of 14.1%, which basically compares a bank’s capital against its assets. A higher ratio is favourable and showcases the bank’s ability to withstand a volatile economy.
RBC also has a strong average LCR (liquidity coverage ratio) of 134%. Banks need to be equipped with high-quality liquid assets, which should be enough to cover cash outflows for 30 days. An LCR ratio of over 100% is considered as favourable.
Priced at 10 times forward earnings, RBC stock trades at an attractive multiple. Analysts expect shares to surge over 12% in the next 12 months. After adjusting for dividends, total returns will be closer to 17%.
