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The Canadian Pension Plan (CPP) was created to facilitate a basic income for retired Canadian citizens. It is crucial to keep in mind that the CPP was not designed to become your only source of income in retirement.
Ideally, the CPP should be capable of replacing a quarter of the active income you have for the best years of your life.
Once you hit the 18-year milestone in life, you are lawfully obliged to start contributing to your CPP. As the CPP was designed to cover a portion of the income you have in retired life, it does make one wonder about the possibilities of active income apart from the pension plan.
Retirees are not prohibited from contributing to and building a second pension plan that can give them additional active income during retirement just because they have a CPP.
The best way you can go about creating a second pension for yourself is to invest in CPP stocks.
Understanding CPP Stocks
The Canada Pension Plan Investment Board (CPPIB) is an organization that administers the assets of the CPP to maximize returns on pension, i.e., your investments, without incurring losses or taking on unnecessary risks.
The CPPIB achieves this by making contributions to the publicly traded companies on the TSX.
The fact that CPPIB invests in specific equities makes it safe to call them CPP stocks. If you want to build a fool-proof plan to build a second pension plan for yourself, there’s no better way to do it than to follow the steps of the CPPIB. The investment management body invests in safe stocks that offer reliable returns.
To that end, Enbridge Inc (TSX:ENB)(NYSE:ENB) and Royal Bank of Canada (TSX:RY)(NYSE:RY) stocks are the most suitable options to consider.
The energy sector
It comes as no surprise that ENB is one of the premier CPP stocks. The company has one of the largest energy infrastructures on the planet.
A huge pipeline network handling more than half of the crude oil and gas transportation for the U.S. from Canada makes ENB a substantial entity in Canada’s energy sector.
The company caters to a fifth of the entire U.S. natural gas supply needs. The company operates on volume transported, which means that the prices of transportation are fixed and not subject to volatility in the changing commodity prices. That makes ENB a reliable and stable pick in an industry marred by instability as oil prices fluctuate.
Holding stocks from ENB, in the long run entitle you to steady growth and additional growth through dividends at a 5.85% yield.
Banking royalty
A significant CPP stock is the Royal Bank of Canada. The $154.47 billion market capitalization financial institution is one of the largest banks in the country where the banking sector has historically been phenomenal.
If you take any category of retail banking in Canada, RBC either has the largest or the second-largest market share in that category.
RBC leads its peers in almost every respect, with over 13 million Canadians (and growing) relying on its services. The bank is already huge when it comes to domestic operations, and RBC continues to expand into the country south of the border. Almost a quarter of the bank’s revenue comes from its services in the U.S.
The bank is here to stay for the long run. In addition to consistent growth, the bank also offers investors a healthy dividend yield of 3.92% that can bolster the amount they hold over the years apart from capital gains.
Foolish takeaway
The CPPIB is successful in ensuring a safe pension plan for Canadians due to its long-term outlook for investing in publically traded companies.
The critical factor is to attain stable and reliable returns in the long run. Investing in ENB and RBC can allow you to get the right mixture of risks and capital gains with the additional benefit of dividends.
You can create a solid second retirement plan by following the steps of the existing one.
