It’s essential for Canadians to understand what social security is and isn’t. Revolving around the topic of retirement, social security programs, including the Canada Pension Plan (CPP) (or the Quebec Pension Plan, QPP, for those who have worked in Quebec), the Old Age Security (OAS), and the Guaranteed Income Supplement (GIS), are intended to provide only a basic income for eligible Canadians.
CPP and OAS payments are both taxable income. You can reduce surprises by asking that the federal income tax be deducted from your monthly payment.
Canadian social security programs aren’t enough for retirement
For your reference, the average CPP monthly amount for new beneficiaries at age 65 was $760.07 in 2023. The Government of Canada website says that to qualify for a CPP retirement pension, you must be at least 60 years old and have made at least one valid contribution to the CPP. The CPP Investments website states, “Depending on how much you contribute, CPP can pay up to about one-quarter of an average worker’s salary. In coming years, that will increase to one-third.”
The maximum OAS monthly payment is $713.34 for someone between the ages of 65 and 74. Your actual OAS payment depends on your age, how long you have lived in Canada after age 18, and your income. The amount also adjusts to the consumer price index every quarter.
Earning net income above a threshold would essentially reduce your OAS payment. For example, if your income is higher than $86,912 in 2023, you will have to repay part of your entire Old Age Security pension because of the OAS pension recovery tax.
It boils down that the social security programs should support your retirement with your personal savings, including Registered Retirement Savings Plans (RRSPs) and Tax Free Savings Accounts (TFSAs), and any workplace pensions being the core of your retirement plan.
Start saving and investing ASAP
Canadians should start saving and investing as soon as possible. It’s good to get into the habit of saving a percentage of every paycheque if possible. First, build an emergency fund. After that, you can consider investing your money.
The earlier you start saving and investing for your retirement, the better. In fact, the earlier you start, the less risk you can choose to take. Stocks can be excellent long-term investments. They are perceived to be risky investments, but actually, there’s a spectrum of risk in stock investing. In the long run, a stock’s performance is primarily driven by the results of the underlying business, although short-term market sentiment can heavily move stocks in either the up or down direction.
Stock investing examples
Companies that make growing profits in most years with high predictability generally have resilient stocks that tend to move higher over time. Alimentation Couche-Tard (TSX:ATD) is a prime example. Its earnings are either stable or growing in most economic conditions. The global convenience store consolidator is excellent at allocating capital in strategic acquisitions and deleveraging its balance sheet after major acquisitions.
Couche-Tard is a Canadian Dividend Aristocrat that has increased its dividend for about 14 consecutive years. The dividend grower’s return is about 29% over the last 12 months alone, with most of the returns coming from price appreciation. Any meaningful dips should be investigated as a potential buying opportunity.
Mature businesses like Enbridge pay out large chunks of their earnings or cash flows as dividends. Investors holding this type of stock are seeking most returns to come from dividends. This would be a lower-risk way to invest in the stock market, assuming the dividends are sustainable and, therefore, a form of predictable returns.
