For many Canadians, retirement begins with a surprise: government benefits cover far less than expected. While the maximum Canada Pension Plan (CPP) payment at age 65 in early 2026 is $1,507.65 per month, the average new retiree receives closer to $800. Old Age Security (OAS) adds a maximum of $742 to $816 per month, depending on age.
That income may fall short of today’s living costs — especially with housing, food, and healthcare expenses continuing to rise. The reality is clear: CPP and OAS were designed as a foundation, not a full retirement plan. The real question becomes: how do you build the rest?
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Build income beyond government benefits
Bridging the gap starts long before retirement. During your working years, contributing consistently to a Registered Retirement Savings Plan (RRSP) and a Tax-Free Savings Account (TFSA) can dramatically improve your financial flexibility later.
An RRSP provides an upfront tax deduction, allowing investments to compound tax-deferred. However, withdrawals are taxable, and by the end of the year you turn 71, the RRSP must be converted into a Registered Retirement Income Fund (RRIF), triggering mandatory minimum withdrawals.
Careful coordination between RRIF withdrawals, CPP, and OAS can help reduce unnecessary tax burdens and potentially avoid OAS clawbacks.
A TFSA, by contrast, offers tax-free growth and withdrawals. This makes it a powerful tool for managing income strategically in retirement. Need extra cash without pushing yourself into a higher tax bracket? The TFSA can provide it.
Non-registered accounts also play an important role. Eligible dividends from Canadian companies receive favourable tax treatment, making dividend-paying stocks particularly attractive outside registered accounts.
Use dividend growth to outpace inflation
One effective strategy to bridge the income gap is building a portfolio of quality dividend-growth stocks. The goal isn’t only yield — it’s growing income that keeps pace with inflation.
For example, PepsiCo (NASDAQ:PEP) has increased its dividend for more than 50 consecutive years. Its 10-year dividend growth rate has averaged over 7% annually. For Canadians holding U.S. stocks, placing them inside an RRSP or RRIF can avoid the 15% U.S. withholding tax on qualified U.S. dividends — an important detail that improves long-term returns.
For Canadians, investing in Pepsi (and other U.S. stocks that are available) on the NEO Exchange may make sense when U.S. dollars are relatively high versus Canadian dollars.
Another example is Brookfield Asset Management (TSX:BAM), which offers exposure to global alternative assets, generating recurring fee-based earnings. With a dividend yield close to 3.5% and a target of double-digit dividend growth, it represents the type of company that can quickly increase retirement income over time. Stocks like this can be held in a TFSA or non-registered account, depending on your broader tax strategy.
The principle is simple: a portfolio generating reliable and rising dividends can supplement government benefits and reduce the risk of outliving your savings.
Reduce the other side of the equation
Bridging the gap isn’t only about increasing income — it’s also about managing expenses.
Start with a detailed retirement budget. Understand fixed costs versus discretionary spending. Eliminating high-interest debt before retirement can significantly improve monthly cash flow.
If your situation is complex, working with a financial advisor can help you create a coordinated, tax-efficient withdrawal strategy tailored to your needs.
Investor takeaway
CPP and OAS provide essential baseline income, but for most Canadians, they won’t fully cover retirement expenses.
Building substantial savings in RRSPs, TFSAs, and non-registered accounts — particularly with dividend-growth investments — can generate rising income that helps close the gap.
Combine smart tax planning and investing with disciplined expense management, and you can transform government benefits and personal savings into a secure and confident retirement.
