Retirement is an important and difficult decision, especially in times like these when high food inflation keeps daily budgets tight. Now, if you are dependent on the Canada Pension Plan (CPP) and Old Age Pension (OAS) for retirement, it may not be sufficient in high inflation. Why do I say so? The CPP is designed to give you 25% of your pre-retirement income.
Up and coming retirees: How much CPP can you get?
As you near retirement, you start calculating your passive income, savings and government benefits. Starting with the CPP, the Canada Revenue Agency (CRA) calculates your CPP amount based on how much you contributed and for how long.
If you contributed the maximum CPP for 39 years, without any breaks, you can get the maximum CPP payout of $1,306.57 per month at age 65. But rarely does anyone get this payout, as it means you should be on a good pay scale at the start of your career, without any low paydays, maybe due to career breaks, medical breaks, or unemployment.
The average CPP payout is $811.21/ month. Add to this the maximum Old Age Security (OAS) pension of $691, and you can earn up to $1,500/ month. If you have no rent or debt expense, a $1,500 amount ($18,026.5/year) might barely get you by.
But this $18,000 is taxable, which you can reduce through various tax credits like the $15,000 basic personal amount. You can also claim $8,396 in age amount tax credit available to Canadians above 65 years of age with an annual income of $42,335.
How to defend your CPP pension against inflation
After doing the calculations, it is clear that the CPP and OAS are not enough to retire. You need personal passive income to fall back on and ensure that the CRA tax claws don’t come haunting you. This time, you won’t have any CPP or Registered Retirement Savings Plan (RRSP) deductions to save tax.
A wise call is to convert your Tax-Free Savings Account (TFSA) into retirement passive income and your emergency fund, which you can fall back on. Passive income will help you defend your CPP against inflation and get by with daily expenses. And an emergency pool could come in handy in difficult times. TFSA withdrawals are easy and tax-free. It means even if you withdraw $15,000 from your TFSA in 2023, it won’t add to your taxable income, and you can avail of the above tax credits to their optimal.
Building your TFSA passive income
To build your TFSA passive income, you can count on three stocks – Enbridge (TSX:ENB), BCE, and CT REIT– to give you inflation-hedged payouts for 10 years and above. They have a good history of paying regular dividends and growing them annually. All three stocks are trading near their lows and have low volatility.
Enbridge is a dividend king to rely on for retirement income. The stock has been paying dividends for 67 years and has even grown them for 27 consecutive years. The pipeline stock took a hit from the bearish momentum in May and is trading closer to its 52-week low.
Enbridge stock is less volatile and range-bound. So if you buy at its low, your investment is safe, and you lock in a higher dividend yield. The company has been growing its dividends annually at 3% for the last three years and can maintain this growth for a long time.
| Stock | Stock Price | Dividend/share | Average Dividend growth | Number of Shares | Annual Dividend |
| CT REIT | $14.80 | $0.90 | 3% | 675 | $606.29 |
| BCE | $59.40 | $3.87 | 5% | 336 | $1,300.32 |
| ENB | $48.83 | $3.55 | 3% | 409 | $1,451.95 |
How to earn inflation-hedged TFSA passive income
A $10,000 investment in CT REIT and $20,000 each in BCE and Enbridge could give you $3,358.50 in annual passive income, bringing home around $280/month. It could also grow your TFSA passive income by 3.7% annually as long as these companies maintain their growth rate.
