If you were to turn 70 this year, your 40 years of working could have earned you a maximum Canada Pension Plan (CPP) payout of $1,855 per month. This amount would only be available if you made maximum CPP contribution throughout your 40-year career. That is a difficult feat to achieve, as there are periods of unemployment and lower income.
Even the maximum CPP is not enough to maintain an average standard of living, considering the rising healthcare cost. Putting yourself in a pensioner’s shoes makes you realize that the CPP payout probably won’t be enough. You need to supplement it with your own pension fund. Depending on how many years you have until retirement, you can devise an investment strategy for your portfolio.
Building own pension fund at age 60
If you are in your early 60s, you can concentrate on adding dividend stocks to your Tax-Free Savings Account (TFSA) while they still trade at their lows. The current high interest rate environment has pulled down the stocks of Telus Corporation and CT REIT (TSX: CRT.UN). However, they have been growing dividends steadily.
CT REIT’s 13% stock price dip has inflated its distribution yield to 6.6%. It pays monthly distributions and grows them at an average annual rate of over 3%. If you have growth stocks like Constellation Software or Bombardier in your TFSA that have given handsome returns, it is time to book profits and convert them into regular tax-free dividend payouts.
If you invest $20,000 in CT REIT today, you can lock in $110.8 in monthly payouts that will grow with inflation. You would also have the opportunity to grow your $20,000 investment when the central bank cuts interest rates next year. If you are still working, you can consider reinvesting your payouts through the dividend-reinvestment plan (DRIP) and compound your payouts. Even Telus offers a DRIP and a 7% average annual dividend growth.
Building own pension fund at age 40
If you are in your early 40s, there is a long way to retirement. You could consider dividing your pension fund into long-term growth and dividend stocks. Some long-term growth stocks to consider are Nuvei (TSX: NVEI) and Hive Digital Technologies (TSXV:HIVE). Let us look at these stocks from a 10-15-year perspective.
Nuvei payments platform is expanding into enterprise payments, which will give it higher transaction volumes and relatively stable cash flows. However, before this materializes, Nuvei has to face the high debt it took to fund the Paya acquisition. Moreover, it keeps becoming a constant target of a short seller, pulling down its stock price. These things will keep the stock volatile in the short term, but long-term secular trends of digital payments and e-commerce could drive the stock up severalfold.
Hive stock
The blockchain technology company Hive has expanded into cloud solutions, offering its graphics processing unit (GPU) data centres for high-performance computing needs. While providing cloud services, it continues to mine Bitcoin, the most stable cryptocurrency. Hence, Hive is a good way to gain exposure in the BTC price momentum. Cryptocurrency has faced scams, lack of trust and adoption for over a decade. It faced significant boom and bust cycles, and BTC has thrived in all cycles. But if you look at Hive’s 10-year growth, a $10,000 investment in December 2013 is now $211,000. The stock is currently trading at its cyclical low.
Another crypto wave could grow the stock price severalfold. And even if you fail to catch the trend, you would be happy to see the return 10 years from now as its cloud solutions pick up with artificial intelligence adoption.
Investing in such growth stocks can help you convert your $6,000 TFSA contribution to $600,000 over the long term. And if there are some years when growth stocks are overvalued, you could invest in evergreen dividend stocks like Telus Corporation and create a stable base for your TFSA portfolio.
