Your Canada Pension Plan (CPP) pension income will most likely prove to be too meager to afford the cozy post-retirement living. It will have to be supplemented by other means, such as Old Age Security (OAS), and above all, the savings you gather throughout your lifetime.
What is your CPP pension income?
Numerous factors determine your CPP pension income, including:
The age at which you begin receiving your CPP benefits
The amount and duration of your CPP contributions
Your average income
Even though this year’s maximum CPP pension income at age 65 is $1,433, the average CPP payment from October to December is only $848.37. This is far from sufficient. Dividend income can help with that.
Making use of dividend income to boost your CPP
Dividend income can be generated from life savings for retirees. To effectively develop a diversified portfolio across important sectors, including banks, utilities, energy, telecoms, technology, consumer staples, health care, and real estat,e with appealing or at least affordable entry points, it would be preferable to set up your dividend portfolio over a minimum of a few time periods.
You can invest in an exchange-traded fund (ETF) such as the iShares S&P/TSX Canadian Dividend Aristocrats Index ETF (TSX: CDZ) to diversify right now. This fund distributes dividend income every month from approximately 90 holdings. It has a 3.5% distribution yield as of late. That means you need to invest slightly over $342,857 to make $1,000 a month.
Exposure to a diverse basket of high-quality Canadian dividend-paying equities that have raised dividends for at least five years in a row is offered by the fund.
Financials account for roughly 23% of the total, followed by energy (15%), real estate (13%), utilities (11%), industrials (10%), consumer staples (9%), communications (8%), and information technology (2%).
Top holdings are:
3.6% in Allied Properties REIT
2.9% in South Bow
2.6% in TELUS
2.3% in Toronto-Dominion Bank
2.3% in CT REIT
2.2% in Power Corp.
To avoid purchasing at the market peak, you can dollar-cost average into the fund over the months to end up averaging the cost per unit.
Protect yourself from market declines
Do not invest all of your lifelines in your cash flow, however! Make sure you have cash coverage for declines that may sometimes come up down the road.
Bear markets, 20% or worse losses, average 11 to 15 months but are considerably shorter or considerably longer depending on the trigger, as well as the extent.
So, over the rolling 15-plus months, pensioners will need to finance their cash requirements from risk-free sources such as laddered guaranteed investment certificates (GICs), whose principal is also secure, so that they are not forced to dip into their long-term investments in the stock and bond markets during falling markets.
Investor takeaway
Before you invest your life savings in dividend income, ensure you cover your cash needs to protect yourself during market downturns.
For instance, your cash requirement will be satisfied by the laddered GICs and by the savings account. To diversify your source of monthly dividend Income straight away, buy an ETF such as the CDZ. Dollar cost average into it over the years if you’re able.
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