When you’re edging closer to retirement, the biggest concern is when to collect the pension. You might think that it’s a simple decision to make, but it’s a dilemma for many Canadian retirees. The objective is to get the most of your Canada Pension Plan (CPP). Hence, the timing to withdraw the pension is crucial.
You have the option to take out the benefit early, late, or sometime in between. Usually, the appropriate time is when you turn 65, the standard retirement age. Although you can collect as early as 60 years old, the pension amount is lower.
If you prefer to receive a higher pension, the trick is to delay the collecting up to age 70. There’s an 8.4% increase in pension for every year you delay receiving your benefits. At this point, your investments play a crucial role in making the final decision.
Retirement savings
In reality, the pension amount you will receive is not sufficient to cover your financial needs during retirement. That is the reason why there are investment accounts like the TFSA and RRSP for Canadians.
Had you invested in blue-chip stocks such as Bank of Nova Scotia (TSX: BNS)(NYSE: BNS) and Suncor (TSX: SU)(NYSE: SU) when you were younger, you’d have substantial retirement savings today to augment your CPP pension.
Younger folks should follow the advice of saving and investing early to secure your financial future. For older people, it’s not too late to use your savings for investment purposes.
Blue-chip companies
Scotiabank and Suncor are the recommended stocks since the fund manager of the CPP, the CPP Investment Board (CPPIB), invests in both companies. The CPPIB also reinvests the dividends from the stocks to compound the pension fund.
Halifax-based Scotiabank has been paying dividends since 1832. Apart from the consistent dividend payouts for the last 187 years, Scotiabank has had a dividend-growth streak in the previous eight years. The bank stock’s yield is 4.74%.
With Scotiabank in your investment portfolio, you can create a mini-pension plan. The rock-steady dividends can sustain you for life. You can use the CPP pension for your day-to-day expenses.
This $92.22 billion bank is still growing, as it continues to expand beyond North America. The business segments in the emerging markets in Latin America and the Caribbean are fueling growth.
Suncor is a Dividend Aristocrat paying a 4% dividend. This energy stock has a dividend-growth streak of 16 years. Assuming you are 30 years old today with $50,000 savings, your money could be worth $240,000 when you reach 70. You could get $9,600 in dividends annually, or $800 monthly passive income.
This $64.2 billion oil and gas integrated company has all the features of a dependable income provider. The company has a quality balance sheet and low liabilities, and it generates strong cash flows annually. It won’t miss paying you the dividends you need to feed your retirement lifestyle.
Financial support minus the CPP
Your retirement will be worry-free if you have Scotiabank and Suncor as your back-up to the CPP. You can live off the dividends from the stocks and withdraw from your pension at age 70.
