The Canada Pension Plan, or CPP, is a taxable monthly retirement payout. In 2024, a 65-year-old retiree beginning the CPP will receive an average of $831.92, while the maximum payment is higher at $1,364.60.
The amount an individual receives via the CPP depends on multiple factors such as the age you decide to start the payout, the length of these contributions, and the average earnings throughout your working life.
Now, even if you delay the CPP earnings by five years, the maximum payout will rise by 42% to $1,937, which may not be enough to lead a comfortable life in retirement. It’s evident that Canadian retirees need to boost their CPP pension by creating alternate passive income streams. Here are two ways to create a passive-income stream and supplement the CPP payouts in the process.
Invest in fixed-income products
Retirees generally have a lower risk profile and would like to invest in fixed-income products such as Guaranteed Investment Certificates (GICs). This financial product has gained popularity in recent years as elevated interest rates allow you to enjoy a forward yield of 5%. In fact, even the great Warren Buffett has significant exposure to fixed-income products such as Treasury Yields.
Investing in GICs is quite straightforward where you deposit money in banks and financial institutions and earn an interest on these deposits. Given inflation is cooling off, GICs offer you an opportunity to grow your wealth, especially if interest rates remain high.
Invest in blue-chip dividend stocks
Canadian retirees with a higher risk appetite can consider investing in blue-chip dividend stocks such as Sun Life Financial (TSX: SLF). Valued at $38 billion by market cap, Sun Life pays shareholders an annual dividend of $3.24 per share, which translates to a forward yield of 4.9%.
In the last 10 years, Sun Life has more than doubled its quarterly dividend payout from $0.38 per share to $0.81 per share. Its consistent dividend hikes have allowed Sun Life to return close to 300% to shareholders since June 2004, compared to the TSX returns of 367%.
In the first quarter (Q1) of 2024, Sun Life Financial experienced strong growth in insurance sales, contractual service margin (CSM), and assets under management. A company’s CSM is the unearned profit it expects from the services provided.
Moreover, Sun Life’s individual protection sales were up almost 50% year over year due to growth in Asian markets such as Hong Kong. Asia was also a leading driver of Sun Life’s CSM business, which rose by 50% to $347 million in the March quarter, allowing it to end Q1 with a CSM of $12 billion.
Sun Life chief executive officer Kevin Strain stated, “We continue to see growth in our asset management businesses, with total company AUM reaching an all-time high of $1.47 trillion this quarter, up 8% year-over-year, reflecting the continued strength of our asset management capabilities and market appreciation.”
Priced at 10 times forward earnings, Sun Life stock is quite cheap and trades at a discount of 16% to consensus price target estimates. After adjusting for its dividends, total returns may be closer to 21%.
Retirees should identify other such high-yield dividend stocks and further diversify their equity portfolio, which lowers overall risk.
