For many Canadians, the Canada Pension Plan (CPP) is expected to be a cornerstone of retirement income. But relying on it alone could leave you far short of what’s needed for a comfortable retirement — especially in cities like Toronto or Vancouver where living costs can be sky-high.
That’s where dividend stocks come in. With a bit of foresight and strategy, they can become a powerful tool to help bridge the retirement income gap.
The cold reality of CPP
CPP is a contributory, earnings-based system designed to provide a modest base income in retirement. While it’s managed by CPP Investments with the goal of maximizing returns and minimizing risk, the actual monthly payout for retirees may come as a shock.
As of January 2025, the maximum CPP payout at age 65 was $1,433 per month, but few retirees receive the maximum. In fact, the average payment as of October 2024 was just $899.67 a month, or about $10,796 a year. That’s not enough to cover even basic expenses in many parts of the country.
Your CPP payout depends on a number of factors:
- When you start collecting (earlier or later than age 65)
- How much and for how long you contributed
- Your average earnings over your working life
Combine that with rising living costs, especially in major cities, and it becomes clear that CPP alone isn’t sufficient. For instance, a single person living in Toronto or Vancouver might spend upwards of $3,500/month, or $42,000/year, just to maintain a modest lifestyle.
Dividend stocks can boost your retirement income
Dividend-paying stocks can help fill that income gap — especially when you plan to buy and hold for a long time. By strategically buying during market corrections, you can lock in higher yields and generate more income over time.
Take Royal Bank of Canada (TSX:RY) as an example. In early 2025, shares dipped to around $150 during a market pullback, offering a 3.9% dividend yield. As one of Canada’s largest and most diversified banks, Royal Bank has a strong track record of quality earnings and dividend payouts — even during economic downturns. Just months later, the stock rebounded over 15%, and while its current yield sits closer to 3.5% and the stock is fairly valued today, the income stream for early buyers is already paying off.
Another good retirement stock is Fortis (TSX:FTS). During the 2022 interest rate hikes, this utility stock — known for its reliability and annual dividend hikes — plunged more than 20%, hitting a low of about $45 per share. At that price, investors locked in a 5% yield from a company with decades of consistent dividend hikes. Today, Fortis trades roughly 45% higher but it remains fairly valued as its earnings have steadily risen, and the yield on cost for those early buyers is around 5.5%. Its dividend remains reliable, offering a yield of close to 3.8% today.
Additionally, both Royal Bank and Fortis pay out eligible Canadian dividends that are taxed at lower rates in non-registered accounts compared to other income, including employment income, interest income, and foreign income.
The bottom line: Plan ahead, retire strong
These examples aren’t just historical trivia — they’re a playbook for building wealth and income in retirement. By consistently investing in quality dividend stocks and taking advantage of market downturns, Canadians can build a stream of passive income that complements CPP.
The earlier you start, the better. A well-diversified portfolio of dividend stocks can provide not only growth but also a dependable monthly income that adjusts for inflation through dividend increases.
CPP is a helpful start — but it was never meant to be your whole retirement plan. Wise stock picks over the long run can enhance your retirement lifestyle.
