Canadian investors are using their self-directed Registered Retirement Savings Plan (RRSP) accounts to build savings portfolios that will provide retirement income to complement CPP, OAS, and work pensions.
High inflation in recent years has made it more important for investors to try to get the best returns possible on their RRSP holdings, without taking on too much risk in the process.
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RRSP advantages
RRSP contribution space each year is equal to 18% of reported taxable income in the previous year. There is a limit, but you need to have income of close to $200,000 in 2026 to worry about hitting that cap for the 2027 contribution.
As an incentive to save for retirement, the government allows the amount of annual RRSP contributions to reduce the person’s taxable income for the relevant year by that amount. For example, a person who earned $100,000, but has contributed $18,000 to their RRSP would pay taxes on income of just $82,000.
When people are in the higher marginal tax brackets, the tax savings can be significant. RRSP withdrawals normally occur at the time of retirement and are taxed as regular income. Ideally, RRSP contributions are made at a higher tax bracket and removed when the person is at a lower income level after they stop working.
One thing to keep in mind, however, is that contributions to company pension plans count toward the RRSP limit. Generous pension plans that see the company match or even contribute a multiple of the employee pension contribution can potentially eat up most of the annual RRSP limit. Investors can check their CRA notice of assessment (NOA) to see how much RRSP room they actually have available after accounting for contributions to the work pensions.
Interest, capital gains, and dividends are not taxable while they are earned inside the RRSP. This enables people to compound the full value of their RRSP earnings until retirement.
Dividend stocks
A popular RRSP investing strategy involves buying top TSX dividend stocks and using the distributions to acquire more shares. This sets off a powerful compounding process that can turn modest initial investments into meaningful savings over time.
Stocks that have long track records of dividend growth tend to be solid picks. Dips in the stock price enable the dividends to buy even more shares. Companies that steadily raise their dividends tend to see their share prices rise over the long run.
Enbridge (TSX: ENB) is a good example of a top dividend-growth stock with an attractive yield.
The company has increased the dividend for 31 consecutive years. Ongoing dividend growth should be on the way, supported by the current $41 billion capital program. Enbridge trades near $69 at the time of writing, compared to the 2026 high around $80. At the current share price, the stock provides a yield of 5.6%.
Fortis (TSX: FTS) is another top Canadian dividend-growth stock. The utility company has increased its dividend in each of the past 52 years and intends to raise the distribution by 4% to 6% per year through at least 2030, supported by a $28.8 billion capital program.
Fortis investors who use the dividends to buy new shares can get a 2% discount on the new stock through the company’s dividend reinvestment plan (DRIP).
The bottom line
Enbridge and Fortis pay good dividends that should continue to grow. If you have some cash to put to work in a self-directed RRSP, these stocks deserve to be on your radar.
