There is never a better time to become financially savvy as there is when you are nearing retirement age. Being financially smart is a luxury in your early years — and a necessity in your later years. Because in retirement, you won’t have a primary income stream and will have to make do with whatever savings you have and the CPP pension.
Here’s the thing: you can’t do much about your savings when you are already nearing your 60s. One hopes that you invested wisely and, through the power of compounding, managed to build a large enough nest egg. Now all you have to do is convert it into a decent income stream.
But there is one thing you can do about your CPP pension –– delay it. There are two reasons why.
Live a long, long life
Thanks to advances in medical technology and better living standards, Canadian life expectancy has increased over the years, and it has now reached 81 years. Many individuals are living far past that, and it isn’t uncommon to see many 90-year-olds.
While this is an amazing thing, it does have a financial drawback. The longer you live, the more you strain your financial reserves. It’s therefore imperative that when you save and start making decisions about your retirement savings, you plan for many years ahead.
But one thing that you can truly depend upon is the CPP pension. It will continue even if your retirement savings run dry. And as it’s something that you can count on in your later years, it makes more sense to maximize it as much as you possibly can.
Maximize your CPP pension
Your CPP pension is due when you turn 65. The amount you will get will depend upon your annual earnings, years, and contribution amount. There isn’t much you can do about that except wait until you’re 70, which will increase your CPP pension by almost 42%.
Many people make the mistake of starting the CPP pension when they turn 60. This is a mistake, as you not only receive a much smaller amount that what you would have gotten at 65, but once you start taking your pension, that’s the amount you will be receiving for the rest of your life.
So it only makes sense to wait till you’re 70 to start our CPP pension.
Augment your CPP
No matter how much you maximize your CPP, however, you can’t stretch it beyond a certain point. This is where your retirement savings come in. If you invest wisely, you can generate a dependable revenue stream that will augment your CPP and get you a decent enough sum.
One such stock is Enbridge (TSX:ENB)(NYSE:ENB), one of the largest companies in the energy sector and a dividend stud. The company has a history of increasing dividends for two decades and is currently offering a very juicy yield of 6%. A $100,000 chunk of your retirement savings in ENB can earn you $500 a month in passive earnings.
Combined with your CPP pension, this sum will be enough to sustain you for many years. And given Enbridge’s history, it’s much more likely to increase.
Waiting for your CPP pension is the wise move. If your finances force you to choose between breaking one of your nest eggs and taking out an early or even timely CPP pension (at 65), choose the nest egg option.
The reason is simple. Even if you live for longer than you expected, your savings might deplete, but your CPP pension amount will remain.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.
Fool contributor Adam Othman has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Enbridge.