Age is just a number for many. For people nearing retirement, it has real significance and is not meaningless at all. The Canada Pension Plan (CPP) pegs the retirement age at 65. You have the option to draw it at 60 or defer until 70.
There will be dramatic life changes in the retirement phase. A new world is waiting, too. But if you’re taking the CPP, don’t delay. There are three smart reasons you should take the pension at age 60.
More years to enjoy
Taking the CPP at 60 or earlier than 65 has drawbacks. There’s a financial impact, because the pension amount reduces by 36%. If, on average, the annual CPP is $8,074, the amount you will receive is roughly $5,167 only. If you defer until 70, the amount increases by 42% to $11,465.
The difference is substantial if you rely only on the CPP plus the Old Age Security (OAS). Consider carefully, and you will see that the breakeven point with a buddy who waits until 65 is when you both turn 74.
Your pension is lower, but you’re collecting five years longer. At age 74, you might not have the energy to enjoy the sunset years.
Canadians are retiring at 60 due to urgent financial need, while others are burnt out from job stress. However, some have reached the pinnacle of their careers. There are no more work goals to achieve. The next step is to quit the mainstream and move to the retirement stage.
Substantial nest egg
The transition to retirement is a breeze if you have a substantial nest egg or retirement. Saving in your early 20s gives you a head start. Planning for retirement is a long-term process. The time frame is not one year or three years before. It’s usually for 20 years.
Your financial resources will determine your readiness to retire. The CPP pension can cover the necessities, but it’s too small to live comfortably. Only those who did not prepare early will keep working after 60 or 65.
A dividend all-star for keeps
A dividend all-star like National Bank of Canada (TSX:NA) is excellent for people with long-term financial goals or who are building retirement. This $20.94 billion bank has a dividend-growth streak of 10 years, with a total return of $1,113.86 in the last 20 years.
The current dividend yield of 4.56% is sustainable, considering its low 46.6% payout ratio. Your $100,000 savings will grow to $243,956 in 20 years. In Q2 2020, National Bank reported a 32% loss in net income (from $558 million to $379 million) versus Q2 2019.
Like the Big Five banks, this bank raised its credit loss provision. The $504 million is management’s most prudent estimate ahead of an uncertain macroeconomic outlook. National Bank maintains a profitable niche in Quebec. Wealth management is one of its strong suits.
The low-rate environment is hurting banks, although National Bank maintains strong capital and liquidity levels that serves it well during these uncertain periods.
Exciting new life
Prepare a retirement checklist and keep track of your progress. Your investment should also compound over the years. When you get to 60, you’re ready to live an exciting, new life.