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The Canada Pension Plan, or CPP is a monthly, taxable benefit that replaces a part of your income in retirement. To qualify for the CPP, you must be over the age of 60 with at least one valid contribution to the pension plan.
These valid contributions can be from the work you did in Canada. You can also receive CPP credits from a former spouse or partner at the end of the relationship.
The amount you receive via the CPP each month depends on multiple factors:
- Your average earnings throughout your working life
- Your total CPP contributions (which is based on your earnings)
- The age you decide to start the CPP
When should you begin CPP payments?
The standard age to start receiving the CPP is 65. But you can begin these payments by the age of 60 or delay it to the age of 70. Canadians should note that the CPP will reduce by 0.6% each month if they choose to start it before 65. So, the payout will decline by 36% if it starts at the age of 60. Alternatively, the CPP will increase by 0.7% each month, or 8.4% per year, if you begin the payment after age 65.
The maximum monthly amount 65-year-old CPP pensioners could receive in 2023 is $1,306.57, while the average CPP amount is much lower at $772.71.
The estimated monthly expenses (without rent) for an individual living in Canada are close to $1,400, which is much more than the average CPP payout. So, you need to supplement the CPP with other income sources to lead a comfortable life in retirement.
One low-cost way to create a passive-income stream is by investing in blue-chip dividend stocks such as Enbridge (TSX:ENB) and Bank of Nova Scotia (TSX:BNS). Here’s why.
Invest in TSX dividend stocks
An energy infrastructure company, Enbridge, currently offers you a tasty dividend yield of 7.8%. While Enbridge is part of the cyclical energy sector, it has raised dividends by 10% annually in the last 28 years, showcasing the resiliency of its cash flows.
Around 80% of Enbridge’s cash flows are tied to long-term contracts and indexed to inflation, making it relatively immune to changes in commodity prices. Its utility-like cash flows make Enbridge a top dividend stock for income-seeking investors.
Priced at less than 17 times forward earnings, Enbridge continues to invest in growth projects, which should drive future cash flows and dividends higher. ENB stock also trades at a discount of 18% to consensus price target estimates.
Another blue-chip TSX stock is Bank of Nova Scotia, which currently yields 7%. Investors are worried about a tepid lending environment in the near term, dragging shares of BNS and its peers significantly lower in the last two years.
However, the big Canadian banks are quite conservative, and this approach has allowed them to navigate multiple economic downturns with relative ease. In fact, BNS has paid shareholders a dividend for 190 consecutive years, which is remarkable for a cyclical company.
Priced at nine times forward earnings, BNS stock is cheap and trades at a discount of 10% to consensus price targets.
