CPP and OAS Aren’t Enough: Here’s How to Fill the Retirement Income Gap

CPP and OAS leave most retirees with an income gap, and a TFSA dividend stock like Sun Life could help fill it tax-free.

Key Points
  • Most Canadians won’t get maximum CPP, so CPP and OAS alone may not cover long retirements.
  • TFSA withdrawals usually won’t raise taxable income or trigger OAS clawbacks like RRIF withdrawals can.
  • Sun Life offers a covered 3.3% dividend with growth potential, but markets and acquisitions can hurt results.

Retirement can replace a dependable paycheque with two government deposits that are considerably less generous. Even the maximum Canada Pension Plan (CPP) and Old Age Security (OAS) payments for a 65-year-old currently total just $2,259.62 per month before tax. That may cover the basics, provided retirement doesn’t contain groceries, property taxes, or any fun whatsoever.

Most Canadians won’t receive the maximum CPP. The average new pension at 65 was $877.01 per month in April 2026, while the maximum OAS payment for someone aged 65 to 74 is $751.97. Together, that’s approximately $1,628.98 monthly or $19,547.76 annually before tax.

Actual amounts depend on contribution history, retirement age, income, and years spent living in Canada. Both benefits receive inflation adjustments, yet they aren’t designed to replace an entire working income. A retirement lasting 25 or 30 years can also introduce healthcare, housing, and home-maintenance costs that didn’t politely appear in the original budget.

senior man and woman stretch their legs on yoga mats outside

Source: Getty Images

Building a second paycheque

The income gap can be filled using workplace pensions, Registered Retirement Savings Plans (RRSP), Registered Retirement Income Funds (RRIF), and investments held inside a Tax-Free Savings Account (TFSA). RRIF withdrawals are taxable, while TFSA withdrawals generally aren’t included in taxable income or used to calculate federal income-tested benefits.

That distinction becomes important for higher-income retirees. The 2026 OAS recovery-tax range begins at net world income of $95,323, with 15% of income above the threshold repaid. RRIF withdrawals and investment income outside registered accounts can push retirees closer to that line. TFSA withdrawals won’t join the shoving match.

A collection of well-covered Canadian dividend stocks can therefore provide tax-free income while continuing to grow. One insurer already helping Canadians prepare for retirement could also help fund it.

SLF

Sun Life Financial (TSX: SLF) provides insurance, employee health benefits, wealth management, and investment services across Canada, the United States, and Asia. This diversification allows it to earn premiums and management fees rather than depending entirely on one economy or product.

First-quarter underlying earnings per share (EPS) increased 4% to $1.89, while assets under management reached $1.6 trillion. Sun Life stock’s underlying dividend payout ratio was 49%, sitting within management’s 40% to 50% target range.

The quarterly dividend increased from $0.92 to $0.96, producing an annualized payment of $3.84. At the recent $114.70 share price, that creates an approximately 3.3% yield. In fact, $7,000 investment would purchase 61 full shares and generate approximately $234.24 in annual TFSA income. That won’t close the retirement gap alone, although repeated contributions, dividend increases, and reinvestment could build a considerably larger paycheque.

COMPANYRECENT PRICENUMBER OF SHARESANNUAL DIVIDENDANNUAL TOTAL PAYOUTFREQUENCYTOTAL INVESTMENT
SLF$114.7061$3.84$234.24Quarterly$6,996.70

Looking ahead

Sun Life stock completed its acquisition of Bell Partners in July, adding a U.S. multifamily real estate investment manager to its asset-management platform. It also recently acquired the remaining interests in BGO and Crescent Capital, potentially increasing fee-producing earnings as those businesses expand.

The shares trade near 21 times trailing earnings at writing, so they’re reasonably valued rather than abandoned in the bargain aisle. Second-quarter results arrive August 6 and should provide the next look at Asian insurance growth, asset-management flows, and acquisition progress.

That said, market declines can reduce asset-management fees, while weaker economies, insurance claims, credit losses, currency movements, or acquisition problems could pressure earnings. Sun Life stock’s dividend isn’t guaranteed, and its current price leaves less room for disappointment than a deeply discounted stock would.

Bottom line

CPP and OAS can provide the foundation, while years of TFSA contributions can construct the rest of the house. If Sun Life keeps expanding earnings and raising its dividend, today’s modest quarterly income could become a far more comfortable retirement paycheque later.

Fool contributor Amy Legate-Wolfe has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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