The Canada Pension Plan (CPP) payment is for life, but more is needed to live on or support financial needs in retirement. CPP users should heed the advice of the Canada Pension Plan Investment Board (CPPIB). The CPP fund manager says the pension is a foundation for Canadians to build their financial security in retirement.
The message is clear from another angle: CPP is not a retirement plan. The maximum pension in 2024 is $16,375.20 ($1,364.60 monthly), although most users receive an annual average of $9,798.24 (as of April 2024 at age 65). The difference is substantial, assuming you’re 65 today and starting CPP payments.
Source: Getty Images
Partial replacement
Since the CPP replaces only 25% (33% soon with enhancements) of the pre-retirement income, the federal government encourage future retirees to utilize investment accounts like the Registered Retirement Savings Plan (RRSP) and Tax-Free Savings Account (TFSA). Because money growth is tax-sheltered and tax-free, income earned in them could fill the income gap or CPP deficiency.
Regular contributions to each account and investment in dividend stocks can generate $3,800 in annual passive income. Your total retirement income could increase to $13,598.24 annually ($1,133.99 monthly).
RRSP tax exemptions
RRSP contributions in a year are tax-exempt, and the Canada Revenue Agency (CRA) deducts them from your tax payables. Acadian Timber (TSX: ADN) is an ideal holding in the tax-advantaged investment account. At $17.93 per share, the dividend offer is a lucrative 6.47%. You only need to accumulate $25,000 worth of shares to produce $1,617.50 annually.
Acadian Timber is one of the largest timberland owners in Eastern Canada and the Northeastern United States. The $314.4 million company produces softwood and hardwood sawlogs as well as pulpwood and biomass by-products while providing timber services.
This industrial stock is a buying opportunity because the business is doing well. In the first half of 2024, timber sales and services and net income increased 5.44% and 21.91% year over year to $45.4 million and $13.94 million. Free cash flow (FCF) jumped 208.3% to $24.14 million from a year ago.
Adam Sheparski, president and chief executive officer (CEO) of Acadian Timber, said there was some pricing pressure in the second quarter (Q2) of 2024. However, sales volume increased due to favourable weather and improved contractor availability. Notably, the company registered around 752,100 voluntary carbon credits in the first two quarters of 2024.
TFSA tax-free income
Timbercreek Financial (TSX: TF) is a perfect complement to Acadian Timber but held in a TFSA. At $7.89 per share, this financial stock pays a mouth-watering 8.75% dividend.
More importantly, your TFSA balance could compound faster since the payout frequency is monthly, and you can reinvest dividends 12 times a year, not four. A $25,000 investment (accumulated TFSA contributions, not lump sum) will generate $2,187.50 in tax-free annual income.
The $654.95 million non-bank lender provides structured financing solutions to commercial real estate investors but only in the short term (not more than five years). Its CEO, Blair Tamblyn, assures that the company will continue to generate consistent, healthy cash flows, notwithstanding a transitioning commercial real estate sector. Timbercreek has been profitable every year since 2020.
For your financial future
Retirement accounts like the RRSP and TFSA are available to motivate Canadians to save, invest, and secure their financial futures. The CPP is lifetime, but there are ways to boost your retirement income with minimal effort.
