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CPP Pensioners: Should You Take Your CPP at 65 or 70?

Image credit: Photo by CIRA/.CA.

The typical age that Canadian retirees start receiving payments from the Canada Pension Plan (CPP) is 65. However, you can become eligible to start collecting them at 60. The latest you can start collecting your CPP is 70.

If you start taking your CPP at 60, you stand to get a significantly lower CPP pension than the amount you can receive if you start at 65. On the opposite end, you stand to earn more in your retirement if you start collecting your CPP at 70.

Difference in collecting at 60, 65, and 70

If you apply to begin getting your CPP at 60, you will get a pension that is reduced by 0.6% for every month before 65. That translates to a total 36% reduction in the amount you can potentially receive if you begin your CPP at the typical age of 65.

In stark contrast to starting the CPP early, deferring your payments till after you turn 65 can enable you to earn more. For every month you delay your CPP after 65, you stand to gain 0.7% more.

If you can defer taking your CPP until you turn 70, you can earn a pension 42% more than you would if you start at the standard age of 65.

There is a considerable difference in potential retirement income between starting your pension plan payments at 60 and 70.

CPP is only a part of your retirement income

If possible, deferring your CPP until you are 70 is the way to go. One thing you should note is that the CPP only makes a part of your retirement income. The bulk of your retirement income should be the personal savings you’ve amassed over the years.

Ideally, you will have most of your savings in tax-advantaged accounts like the Tax-Free Savings Account (TFSA).

To maximize the retirement fund and supplement your retirement income so you can defer your CPP until you are 70, you need to invest in income-generating assets and store them in your TFSA. Reliable dividend-paying stock stored in your TFSA can help you earn significant passive income tax-free.

A stock to consider

The Royal Bank of Canada (TSX:RY)(NYSE:RY) could be a fantastic asset to consider storing in your TFSA to build up a significant retirement fund. RBC is the largest bank in Canada in terms of market capitalization. The bank pays regular dividends to shareholders and offers stable growth in share value.

The stock is trading for $106.22 per share at the time of writing and offers a juicy 4.07% dividend yield. RBC increased dividends for shareholders at an average rate of 7% in the past decade, rising more than twice since 2009.

The bank’s earnings per share (EPS) for Q1 2020, ending on January 31, 2020, were $2.44. The bank’s consumers are adopting its digital banking platforms.

RBC is also expanding into the U.S. retail banking market through its convenient digital banking platforms. The bank also continues to expand into environmentally friendly markets through its $100 billion plan to finance green projects in the past year.

Foolish takeaway

Investing in a trustworthy dividend-paying stock, and storing it away in your TFSA can serve several financial growth goals. Holding dividend-paying stocks for the long-term can help your overall wealth grow due to capital gains for the assets.

The assets also generate passive income for you through dividends. It means you can enjoy the benefits of both capital gains and dividend income in your account over the years.

RBC beat analyst predictions by 6% for its EPS over the past 12 months. It is historically a fantastic performer on the TSX and it has immense potential for safe and reliable growth.

Investing in a stock like RBC can help you accumulate significant retirement funds so you can easily consider deferring your CPP until you turn 70.

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