Here’s How I’m Building My Own Pension With Canadian Dividend Stocks

Have you wanted to build your own personal pension?

With registered accounts like the RRSP and TFSA, you can.

The Canada Pension Plan (CPP) and old age security combined don’t pay near enough to retire on, while employer-sponsored pensions are increasingly rare. On the other hand, you can easily get enough passive income coming in after a few decades of investing to earn adequate combined CPP, OAS, and investment income over the long term. In this article, I will explore how I am doing just that using Canadian dividend stocks.

Part one: The accounts

The substance of how I’m building my own pension with dividend stocks has two components:

1. The accounts.
2. The assets.

Holding your income-producing assets in the right accounts is pivotal to getting good returns in these accounts, because taxes are a major drain on investment income. Even with the dividend tax credit and capital gains exclusion rate, the average person in the top tax bracket in Ontario will pay a high tax rate on dividends. On the other hand, a person investing in a TFSA will pay no taxes on dividends, and a person investing in an RRSP can delay taxation until age 71.

So, I currently have my entire Canadian stock portfolio in RRSPs and TFSAs. By using these accounts, I’ve avoided many thousands of dollars in investment taxes over the years. So, holding assets in RRSPs and TFSAs is a good idea.

Part two: The investments

Now, what am I actually holding in my RRSPs and TFSAs?

Many things. The Canadian portion of my portfolio consists mainly of dividend-paying companies with average to high yields. Canadian markets have pretty high dividend yields on average. I own a few individual Canadian stocks, those of companies that I understand well.

Take the Toronto-Dominion Bank (TSX: TD), for example. It’s a Canadian bank that most readers of this article will presumably be familiar with. The nation’s second-largest bank by market cap, it is well known to most Canadians.

TD Bank pays a quarterly dividend of $1.12 per share. That adds up to $4.48 per year. At today’s stock price of $61.24, TD stock has a 2.8% dividend yield. If you invest $50,000 in it, you’ll get about $1,390 worth of dividends per year, as the table below illustrates.

Now, I didn’t buy TD stock simply for its dividend. When I was heavily buying it in December of 2024, it did have a 6% yield, but that was a secondary concern. TD doesn’t have much of a yield today, yet I continue holding about 65% of the shares I held at the peak when the yield was much higher. There are several reasons for this, including TD’s conservative lending standards, high capital adequacy, and liquidity. These conservative features make for a bank that thrives over the long term.

Foolish takeaway

Building a generous personal pension with dividend stocks is ultimately a function of accounts and investments. If you hold quality dividend stocks/funds in an RRSP or TFSA, you’re likely to do well over the long run.