Retirees: 2 Simple Ways to Boost Your After-Tax CPP

Boosting your after-tax CPP is simple. Put your money in Canadian Natural Resources stock and Suncor Energy stock and be patient. Let the magic of compounding interest grow your retirement fund tenfold.

| More on:

The Canada Pension Plan (CPP), a deferred-income retirement vehicle, was designed to replace 25% of a contributor’s earnings. Enhancements, however, were introduced, so you can enjoy higher benefits. With the improvement, the CPP will begin to grow to replace one-third of the average earnings you will receive after 2019.

If you think your retirement income from the CPP is not enough, you can significantly boost your after-tax CPP with your private savings. You can invest in dividend stocks and create a pension-like plan. Your retirement savings could reach a million through the power of compounding interest.

Nothing can stop your retirement savings from growing if you own shares of Canadian Natural Resources (TSX:CNQ)(NYSE:CNQ) and Suncor (TSX:SU)(NYSE:SU). The CPP Investment Board (CPPIB), the fund manager of the CPP, also has holdings of both.

Put your money to work

Compounding interest is a friend of regular or not-so-wealthy investors. CNQ stock, for example, pays an annual dividend of 4.06%. In the past, the yield was lower. However, a $10,000 investment made 20 years ago had a total return of 1,044.06%.

The high return on CNQ for the period is the dramatic effect of reinvesting dividends. You have an equal shot, just like the rich, to grow your private savings and build a substantial nest egg.

Canadian Natural Resources is a stalwart in the oil sands. This Calgary-based company has been capitalizing on opportunities to generate billions of revenue from the oil fields in the North Sea and Europe. Its presence is expanding through the continuous acquisition of life-long assets to add to its oil sands portfolio.

At less than $40 per share, you have the opportunity to put your money to work and let it grow over the long term.

Be patient

Compounding interest rewards discipline and patience. Long-term investors have been compounding investments in Suncor for years now. This integrated oil and gas company is the second-largest energy company in Canada as of 2019.

If you have a long investment period, Suncor could be your fountain of wealth in your later years. Again, and with the 4.29% dividend, your $100,000 savings would be worth $285,802.94 in 25 years. You can only realize the 186% windfall through the power of compounding interest.

Suncor is the single stock investment of some TFSA users. The energy stock is also one of only two Canadian stocks that legendary investor Warren Buffett holds in his conglomerate’s portfolio.

In choosing Suncor, Buffett is sticking to his value investing principle. He knows that this energy stock has yet to reach its full potential. But for dividend investors, the 17 consecutive years of annual dividend increases is the compelling reason to invest in Suncor.

Eighth wonder of the world

Albert Einstein once quipped, “Compound interest is the eighth wonder of the world.” Other descriptions about compounding interest came after, including “the great equalizer.”

Now that you know the universal truth, you can begin to boost your after-tax CPP by investing in Canadian Natural Resources and Suncor Energy. Let it start with a snowball, then allow the magic of compounding interest to turn your TFSA into an avalanche of wealth.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Christopher Liew has no position in any of the stocks mentioned.

More on Dividend Stocks

profit rises over time
Dividend Stocks

These 2 Dow Stocks Are Set to Soar in 2025 and Beyond

Two Dow Jones stocks are screaming buys but Canadians must hold them in an RRSP or RRIF to avoid paying…

Read more »

TFSA (Tax free savings account) acronym on wooden cubes on the background of stacks of coins
Dividend Stocks

How to Use Your TFSA to Earn Ultimate Passive Income

If you have a TFSA, then you have the key to creating ultimate passive income. All you need is a…

Read more »

Confused person shrugging
Dividend Stocks

Better Buy: Fortis Stock or Hydro One Stock?

Let's do a compare and contrast of these two top utilities stocks right now, shall we?

Read more »

A close up color image of a small green plant sprouting out of a pile of Canadian dollar coins "loonies."
Dividend Stocks

Boost Your Passive Income: 2 Canadian High-Yielders at a Bargain

Nutrien (TSX:NTR) stock and another play that appear like fantastic dividend bargains in mid-November.

Read more »

3 colorful arrows racing straight up on a black background.
Dividend Stocks

TSX Stocks Soaring Higher With No Signs of Slowing

Three TSX stocks continue to beat the market and could soar higher in an improving investment landscape.

Read more »

Hourglass and stock price chart
Dividend Stocks

Goeasy Stock: Is It Heading for a 52-Week High?

Goeasy stock has been edging higher, especially after another record-setting earnings report. So are 52-week highs in sight?

Read more »

Piggy bank with word TFSA for tax-free savings accounts.
Dividend Stocks

Here’s the Average TFSA Balance at Age 44 in Canada

You can invest your TFSA in funds like the BMO Canadian High Yield Dividend ETF (TSX:ZDV) to grow the balance.

Read more »

Electricity transmission towers with orange glowing wires against night sky
Dividend Stocks

The Best Telecom Stock to Buy Before 2025

Choosing the safest stock from a decimated sector can be tricky, but if there is a reasonable chance of full…

Read more »