With just about everyone’s portfolio being decimated in the latest market crash, folks looking to retire soon might have to face an unfortunate reality. Their golden years may not be quite as lavish as first thought.
It’s not all bad news, however. North American stock markets have rallied smartly off the bottom, turning a 30% loss into one closer to 15%. And there are easy ways investors can eke out a little extra cash from traditional retirement sources.
Let’s take a closer look at how any investor who’s feeling a little anxious about their golden years can make things a whole lot easier, starting with CPP income.
Maximizing CPP income
The easiest way to maximize CPP income is to simply delay taking the benefit. There’s no rule that says you must start collecting CPP at age 65.
In fact, many people start taking CPP early, opting for less cash today in exchange for a longer retirement. These folks might have additional sources of retirement income, or they may be forced to take CPP early to make ends meet.
But if you can delay, you can really increase your CPP income. As a general rule, the amount you get goes up by approximately 7% each year for every year you delay after age 65. It also decreases by a similar amount for each year benefits are taken before age 65.
There’s just one issue. Even if you delay CPP until age 70 and collect the maximum – which currently stands at a hair over $20,000 per year – that may not be enough for a comfortable retirement. Other government programs like Old Age Security will help, but I’d recommend doing a little extra to goose your retirement income.
Find part-time work
One easy way to help increase your CPP income is to take on a little part-time work. Remember, you’re just trying to supplement your income, so making as little as $10,000 per year is fine.
There are a million part-time jobs for retirees. The so-called “gig economy” has certainly helped here. Retirees can drive for a ride-sharing service, deliver food, do odd jobs on the internet, and much more. Maybe you’d prefer to drive a school bus or take a part-time job at a grocery store. You can even go back to your old profession, something that’s likely to pay much more than these other jobs.
Having a part-time job is also helpful for socializing and having an excuse to leave the house. Many retirees struggle to fill their time, especially folks who move to a new place.
Most folks don’t retire on CPP income alone. They have savings. But often that cash isn’t invested intelligently; it’s put into products like GICs or government bonds, securities that don’t pay a whole lot of interest.
That’s a mistake. Just $100,000 invested in a portfolio of stocks yielding 5% is enough to generate more than $400 per month in additional income.
In fact, the easy way to do this is to choose an ETF with plenty of high dividend payers already there. One product I like is the BMO Canadian Dividend ETF (TSX:ZDV), an ETF that holds dozens of different Canadian dividend favorites. This fund holds bank, telecom, pipeline, utility, and even real estate stocks. It’s fully diversified with more than 50 total holdings. And it comes with a very reasonable management fee of just 0.35%.
Let’s not forget about the dividend. Thanks to the recent market sell-off, this diverse ETF now offers a 5.7% yield. Yes, some dividends are at risk right now, but that’s the beauty of owning a diverse portfolio. An ETF like this one may end up cutting dividends ever so slightly as some of the underlying companies stop paying, but it’ll be only a small dip. Besides, most of the ETF’s top holdings have a history of increasing their payouts. That trend should continue over the long term.
The bottom line
It’s not that hard to increase your potential retirement income by $10,000 to $20,000 annually. The keys are maximizing your CPP income by waiting to take that benefit, working a little, and investing in a solid ETF like the BMO Canadian Dividend ETF. These moves will make your golden years all the more golden!
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Fool contributor Nelson Smith has no position in any of the stocks mentioned.