Are you expecting to rely on government pensions in retirement?
If so, you may be in for a rude awakening.
According to recent estimates, the average Canada Pension Plan (CPP) cheque is only $803 in 2026, while the average OAS cheque is just $730 per month. While the CPP is inflation-indexed, that doesn’t mean a whole lot if you’re starting off with a paltry amount. Likewise, OAS increases a little when you turn 75, but not by much.
Truthfully, there are ways to make CPP go a long way, but you have to plan them out well in advance. If you earn the maximum pensionable amount and delay taking CPP until 70, you can actually end up with a pretty substantial monthly cheque. The problem is that most Canadians don’t earn the maximum pensionable amount, and many elect to start taking benefits before age 65. Canadians in this boat are likely to get very little in CPP and OAS.
Fortunately, there are ways to boost your pension income – chiefly by building your own pension. By holding dividend stocks and interest-bearing bonds in a tax-free savings account (TFSA) or registered retirement savings plan (RRSP), you can build a personal dividend stock pension. In the ensuing paragraphs, I’ll show how it’s done.
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Step 1: Decide which account to invest in
The first step in building your own personal dividend stock pension is to decide which account you’ll hold your stocks in. There are two tax-efficient options to choose from: the TFSA, which is completely tax-free, and the RRSP, which is tax-deferred.
In a TFSA, you can hold stocks as long as you want, earn returns, and then withdraw the proceeds tax-free.
With an RRSP, you get a tax deduction when you make a contribution, then let it compound tax-free until it comes time to withdraw proceeds. Once that time comes, you pay regular taxes on the withdrawal. RRSP withdrawals are not optional: starting at age 71, you must begin withdrawing funds, and there are annual minimums to keep in mind.
Basically, if you want to withdraw funds relatively soon, you are better off investing in a TFSA. If, on the other hand, you have many decades to go until retirement, you may be better off contributing to an RRSP.
Step 2: invest
Once you have your investment environment set up, it’s time to decide what you’ll actually invest in. There are many options to choose from here. Popular ones include dividend stocks, as well as fixed income investments like guaranteed investment certificates (GICs) and money market funds.
If you’re just getting started, buying a dividend-paying exchange-traded fund like the iShares S&P/TSX Capped Composite Index Fund (TSX:XIC) is likely better than trying to beat the market with “hot stocks” you feel are great. The reason is that diversified, low-cost portfolios tend to outperform individual stocks over time. With XIC, you get a ready-made portfolio of 220 Canadian stocks (91.6% of the stocks in the underlying index), and you pay just 0.06% per year in management fees. I’ve more than doubled my money on the Canadian index funds I’ve held for a few years, so they’ve done well for me. While today’s market is pricier, TSX index funds will likely do well for you, too.
