There are three major pillars for your retirement income in Canada. There’s Government Benefits, Personal Savings and the Employer Pension. The Canada Pension Plan (CPP) and Old Age Security create the Government Benefits. We might consider that part of our pensionable earnings as the amounts are ‘guaranteed’ and indexed to inflation. At times we can read or hear lots of fear mongering around the viability of CPP. But make no mistake, the program is rock solid. The numbers suggest you can count on CPP to be there for you when you retire. Not only that, if a couple enters retirement with no debt and modest spending plans, government benefits mights deliver the bulk of spending needs. We’re looking at the CPP and OAS and more on the Sunday Reads.
Relax, the Canada Pension Plan (CPP) is in great shape and will be there for you. The writer is mad that the program that helps protect Canadians in retirement is in great shape, but have a read, none the less. And you’ll find the link to that actual actuarial report in that post. You can decide for yourself how ‘overfunded’ CPP might be, or may not be. All said, most agree that the CPP is in terrific shape for the next 40 or 50 years. Today’s retrirees and those in their 30s, 40s and 50s might have little to worry about.
CPP/OAS – replacing considerable income needs
CPP is designed to replace 25% of working years’ income for the typical Canadian. The recent CPP enhancement will aim to replace 33% of ‘average’ income. That may not sound like generous income replacement, but consider that spending needs can decrease greatly in retirement compared to working years. And more glaring, is that the spending in retirement compared to income in the working years can fall substantially due to so many spending needs disappearing or falling substantially. On the list would be the mortgage, childrens’ expenses including RESP contributions, RRSP, pension and other savings contributions, taxes decrease, insurance costs, clothing, food costs and more.
Many studies will show that we may will only need to replace 50%, 60% or 70% of working years’ income. Of course, everyone is different and many will plan to spend more aggressively, living it up in the early go-go years of retirement with big travel plans and more. I ran this poll on Retirement Club, the results were similar to a poll I ran on Twitter / X.
You can see my vote in the 50% or less category.
Generating a $50,000 tax-free pension
When you add up the tax benefits for a Canadian retiree at age 65, you’ll find that a couple could create $50,000 of income in tax-free fashion.
The above graphic lists $15,000 from 2024, in 2025 the basic personal amount is $16, 129.
A Canadian couple that have worked enough to satisfy full CPP levels could receive $34,392 at age 65. We can then add in $17,400 from OAS. Yes, we’re above $50,000. And it could be ‘tax free’. That’s an incredible pension-like income base that might cover a considerable amount of spending needs in retirement if one has cleared their debt and has modest spending plans. If a couple was looking to spend $70,000 per year (income after tax) that $50,000 is covering over 71% of the income needs.
Many will argue that those with government pensions ‘have it all’. I’d suggest that Canadians without an employer pension have some of the tax rules greatly tilted in their favour. And as self-directed investors we have control over our spending plans and how we can strategically spend down assets.
Using portfolio assets
Of course a retiree does not have to wait to age 65 to retire if they have saved and invested, maxing out their RRSP and perhaps then building a considerable TFSA.
To retire at age 60 for example, they can spend more aggressively from their registered investments such as the RRSP / RRIF from age 60 to 65 to enable (wait for) the generous payments. They might delay further using the RRSP / RRIF to fund retirement to age 70 as they wait for even greater government benefits. From age 65 to 70, CPP increases by 42% while OAS increases by 36%.
It’s called the RRSP / RRIF meltdown strategy and it is often the number one ‘hack’ for a Canadian retiree.
You can, and it’s a must to run a retirement cash flow calculator to determine what is the most optimal and tax efficient income strategy for you.
The pension for private sector people
But make no mistake. We can count on CPP, and our government benefits can form a pension-like rock solid core. We might even go a step further by harvesting tax-free amounts from our TFSAs and then topping up further with Canadian qualified dividends from taxable accounts that can be very tax efficient (tax free) up to certain levels.
Yes, we could get very greedy on the tax-free income seeking. That said, the retirement calculators will show you that over the longer term, a short term period of generous tax-free income will not enable the most advantageous strategy over the longer term. Eventually the tax man comes calling. The calculators will show us how to smooth the tax burder over time with an optimal strategy.
It’s all the kind of ‘stuff’ we explore in more detail at Retirement Club for Canadians.
Make retirement a breeze
Learn the tricks of the trade. Build Wealth Canada offers a rare peak into a financial planner’s playbook.
The Sunday Reads
At Findependence Hub a look at the free lunch diversification of BMO’s ZEQT.
Be sure to check out the Asset Allocation ETF page on this blog for a comparison of all of the leading AA ETF providers. You’ll see them ranked by provider and by risk level.
Dividend Hawk had a busy week keeping track of his portfolio. Earnings season is in full flight.
Verizon Communications Inc. (VZ) Reports 2Q 2025 Earnings; VZ reported Q2 Non-GAAP EPS of $1.22, reflecting a 6.1% increase year-over-year and beats analyst expectations by $0.03. Revenue grew 5% to $34.5 billion, beating estimates by $790 million. Wireless equipment revenue of $6.3 billion in second-quarter 2025, up 25.2 percent year-over-year. For 2025, Management raised full-year guidance for adjusted EBITDA growth to 2.5% to 3.5%, Adjusted EPS growth guidance was increased to a range of 1% to 3% and Free cash flow guidance was raised to a range of $19.5 billion to $20.5 billion.
For a few of our holdings …
TexasInstruments Incorporated (TXN) Reports Second Quarter 2025 FinancialResults; TXN reported second-quarter GAAP EPS of $1.41, beating analyst expectations by $0.08 and marking a 16% year-over-year increase. Revenue rose 16.5% to $4.45 billion, exceeding estimates by $130 million. For the third quarter, management expects revenue in the range of $4.45 billion to $4.80 billion and earnings per share between $1.36 and $1.60.
RTX Corporation (RTX) Reports Q2 2025 Results; RTX reported second-quarter non-GAAP EPS of $1.56, marking an 11% increase year-over-year and beating expectations by $0.13. Revenue reached $21.58 billion, up 9.0% from the same period last year and surpassing estimates by $950 million. The company’s total backlog now stands at $236 billion, consisting of $144 billion in commercial and $92 billion in defense orders. For 2025, management raised its sales outlook, guiding for adjusted revenue of $84.75–$85.5 billion, up from the previous range of $83.0–$84.0 billion. Organic sales growth is now expected at 6% to 7%, an increase from the prior 4% to 6% forecast. However, adjusted EPS guidance was lowered to $5.80–$5.95, down from $6.00–$6.15. Free cash flow guidance remains unchanged at $7.0–$7.5 billion.
On the news front …
Enbridge Inc. (ENB) Announces 600-Megawatt Solar Project; ENB announced that it has reached a final investment decision on Clear Fork, a 600 MW solar project in Texas. Clear Fork will be a utility scale solar facility located near San Antonio, with 600 MW of capacity. Construction is underway, and the facility is expected to enter in service during the summer of 2027. Meta Platforms, Inc., has signed a long-term contract for 100% of the renewable output of the project. Enbridge’s estimated project cost is US$0.9b and the project is expected to be accretive to cash flow and earnings per share starting in 2027.
The next ten bagger?
At Stocktrades.ca and on the growth front, Dan asks if Artizia is the next ten bagger?
At Tawcan, Bob offers his June portfolio and dividend update.
The rising income is a good sign, but we should remember that when it comes time to retire, the most efficient plan will include shares sales working in concert with dividends. Other than tax treatment, there’s no difference between a share sale (homemade dividend) and a ‘real’ dividend offered by management. Also, dividends do not reduce sequence risk.
The weekend reads at Banker on Wheels gets the spin on double digit decades. Returns have certainly been abnormal. Don’t forget to rebalance. Retirees, consider securing a few more years of retirement income, moving gains to safety.
And check out the plummeting cost of renewable energy.
Million Dollar Journey looks at the best U.S. Dollar bank accounts in Canada.
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Lots of myths swirl around the water cooler regarding the viability of CPP. Ever since the Chretien government initiated reforms in the late nineties to keep our national plan sustainable it’s been rated internationally as one of the top performers using such benchmarks as transparency, sustainability and governance. Any google search will confirm this. Some say our actively managed fund would have done better if invested in a simple index fund. I instead suggest “hindsight is 20/20 vision”.
I have no particular political sentiment but interestingly in my home province of British Columbia the investment wing of the BCGEU ( government employees) also ranks very very high. Set up by the NDP during the late stage of the Glen Clark administration with a similar mandate as CPP, “BCI offers investment options across a range of asset classes: fixed income; public and private equity; infrastructure and renewable resources; and real estate and mortgage.”