The Canada Pension Plan (CPP) is a foundation for retirement, not a plan; the retirement pension replaces only 25% (33% in the near term) of a user’s average working income. Furthermore, most Canadians aged 65 receive the average yearly pension of $9,780 (July 2024).
Only those who made CPP contributions for at least 39 years between ages 18 and 65 could qualify for the maximum $16,375.20 yearly pension. The difference every month is $549.60; $1,364.60 maximum minus $815 average. Is the CPP enough in retirement?
Boost your pension
Canadian retirees or seniors receive $727.67 monthly when the Old Age Security (OAS) benefit kicks in at 65. However, retirement planners will tell you that CPP and OAS pensions won’t be enough to retire comfortably. There are a lot of variables or factors to consider to avoid financial dislocation.
An inexpensive way to boost CPP payouts is to start payments past 65. The incentive for the delay option is a 0.7% increase per month after age 65 or 8.4% per year. Assuming you go the distance or age 70, the permanent increase is 42%. Instead of $9,780, you’d receive $13,887.60 yearly.
If you’re still years away and have time to save and invest, consider creating a nest egg through the Registered Retirement Savings Plan (RRSP). The maximum contribution limit for the tax year 2024 is $31,560. Assume you can contribute the max. Two high-yield royalty stocks can generate $2,530.60 yearly or $210.88 monthly.
| Company | Recent Price | No. of Shares | Div / Share | Total Payout | Frequency |
| Freehold | $13.91 | 1,134 | $1.08 | $1,224.60 | Monthly |
| Diversified | $3.02 | 5,225 | $0.25 | $1,306.54 | Monthly |
The total investment in the example is $31,553.44, $15,773.94 in Freehold Royalties (TSX:FRU) and $15,779.50 for Diversified Royalty (TSX:DIV). Their dividend yields are 7.76% and 8.28%, respectively. Both stocks pay monthly dividends.
Royalty advantage
Freehold Royalties has a less capital-intensive model than oil and gas producers. It owns oil and natural gas royalties in Canada and the U.S. and has no capital, operating, and abandonment costs. Industry operators shoulder all the costs.
The $2.1 billion energy royalty company derive revenue from royalties on crude oil, natural gas, natural gas liquids (NGLs), and potash properties. In the nine months ending September 30, 2024, net income and cash flow from operations increased 1% and 12% year over year to $98.3 million and $164.2 million.
Diversified Royalties’s earnings come from royalty streams from ongoing business concerns. The $501.1 million multi-royalty corporation has eight royalty partners, including Mr. Lube, the largest partner. AIR MILES, Sutton, Mr. Mikes, Nurse Next Door, Oxford Learning Centres, Stratus Building Solutions and BarBurrito complete the cast.
In the first three quarters of 2024, the top-line and total comprehensive income climbed 19.6% and 4.9% to $47.9 million and $22.6 million from a year ago. Management remains optimistic about the growth prospects over the next 10 years because of the diversified portfolio and proven business models.
Twin benefits
CPP users intending to boost pensions but can’t wait until 70 can turn to the RRSP. You can save for retirement and reduce your tax bill because contributions are tax deductible.
