BN:CC - Retire Richer: Unleash the Potential of CPP and TFSA to Maximize Your Income
2023-06-28 11:30:00 ET
Canadians can start getting Canada Pension Plan (CPP) pension payments as soon as they’re 60. However, if you are healthy and don’t need the income, you could delay your CPP payments to get a higher pension payment.
For example, as RBC Dominion Securities wrote, “If you start receiving a CPP retirement pension after age 65, your monthly CPP payments will permanently increase by 0.7% for each month you delay — up to a maximum increase of 42%, which you reach by age 70.”
In the meantime, you can maximize the tax-free income in your Tax-Free Savings Account (TFSA).
Are you retired?
Canadians retiring soon or those who are already retired might not have the time or patience to wait for stocks to appreciate over multiple years. They need more income now! If that’s you, you should explore blue-chip stocks that provide higher yields.
For example, Enbridge ( TSX:ENB ) stock is currently experiencing a pullback. The large energy infrastructure stock has been weighed down by higher interest rates and slower growth. But having some growth is still better than no growth.
Specifically, in the past couple of years, Enbridge stock’s common stock dividend has increased on average by 3%. Through 2025, Enbridge expects to grow its distributable cash flow per share by about 3% per year, while it expects the growth rate to bump up to about 5% after 2025. Therefore, it’s likely that its near-term dividend growth would be more or less 3% per year with the potential to be higher post 2025.
Enbridge stock’s value comes from its massive dividend yield of approximately 7.3%. At $48.41 per share, the analyst consensus 12-month price target also represents a discount of almost 18%. So, its total return over the next five years could still be respectable at 10-14% per year.
- We just revealed five stocks as “best buys” this month … join Stock Advisor Canada to find out if WELL Health made the list!
Do you have decades until retirement?
If you have many years until retirement, you should focus more on growth instead of income. For example, you could seize the opportunity by taking a position in Brookfield Corp. ( TSX:BN ) on the market correction .
The company is more difficult to analyze than average. First, it has a global alternative asset management business that earns management fees and performance fees as carried interest, which “is a contractual arrangement whereby [Brookfield] receives a fixed percentage of investment gains generated within a private fund provided that investors receive a predetermined minimum return. [It] is typically paid towards the end of the life of a fund,” as explained in a Brookfield presentation.
Second, Brookfield has operating businesses — most of which generate substantial cash flows — including renewable power and transition, infrastructure, real estate, and private equity. Third, it’s building a global insurance solutions business, which provides life insurance and annuities and property and casualty insurance.
Overall, management believes its businesses can drive distributable earnings growth of about 20% per year through 2027. Given that the analyst consensus 12-month price target represents a whopping discount of about a third in the undervalued stock, it’s possible for the stock to deliver total returns of north of 20% per year over the next five years. Approximating with the Rule of 72 , investors could double their money in roughly 3.6 years from current levels.
By investing in top growth stocks like Brookfield and taking profit opportunistically, investors could use the gains to transition to higher-yielding stocks for more income as appropriate.
The post Retire Richer: Unleash the Potential of CPP and TFSA to Maximize Your Income appeared first on The Motley Fool Canada .
Fool contributor Kay Ng has positions in Brookfield. The Motley Fool recommends Brookfield, Brookfield Corporation, and Enbridge. The Motley Fool has a disclosure policy .
2023