CPP Pension Users: 3 Alarming Truths About Retirement

Users can’t expect a worry-free retirement if they are to depend on the CPP alone. A comprehensive retirement plan includes investment in reliable dividend-payers like the Bank of Nova Scotia stock.

| More on:
Senior Man Sitting On Sofa At Home With Pet Labrador Dog

Image source: Getty Images

A cause and effect relationship is developing in 2020 between retirees and the pandemic. COVID-19 is putting retirement plans on hold. The fallout from the coronavirus could be long-term such that would-be retirees are thinking of adjusting the retirement timeline.

With or without the pandemic, there are alarming truths about the golden years. COVID-19 is only lowering the confidence to retire.  You must take the right steps now, particularly when lining up your financial resources leading to your retirement.

Lifestyle change

Prepare for a dramatic change in lifestyle. It will occur on the first day of the rest of your life. Retirement is unchartered territory, even if you hear stories from other retirees. It’s different when you step on the actual stage.

Every dollar matters because there is no regular income coming like before. You need to work around a limited budget. This time, you should also be mindful of the impact of inflation on your cost of living. The sunset years bring stress too.

Austere living

Living within your means applies to retirees also. Your means or primary source of retirement income is the Canada Pension Plan (CPP). The challenge is making do with the CPP plus the Old Age Security (OAS) benefit.

The average annual CPP, for instance, is $8.074.44. Add the OAS, and you will be subsisting on only $15,436.80 yearly or $1,286.40 monthly. The amount assumes you retire at age 65.

Your CPP should increase by 42% if you wait until 70, but reduces by 36% if you take it earlier at 60. Regardless of the option, money would be tight, and retirement would not be as comfortable.

Huge gap to fill

Retirement planning is a long process where the key component is structuring your retirement income to fit the lifestyle you envision. Pensions like the CPP replace just 33.3% of the average pre-retirement income. Thus, filling the gap is the goal of CPP users.

Preparation takes typically 20 to 25 years. The time frame is sufficient to build a significant amount of retirement funds. However, it’s not too late to create an income source if you don’t have the luxury of time.

Investing in a blue-chip stock like Bank of Nova Scotia (TSX:BNS)(NYSE:BNS) will allow you to catch up and set you on the right path. The third-largest banking institution in Canada is among the best income investments on the TSX.

People buy this bank stock for the dividends. The 6.62% dividend today can generate a quarterly income of $872.50 from out of a $50,000 investment. You don’t have to sell the stock because the payouts are for a lifetime.

Scotiabank’s 188-year dividend track record is testament to the bank’s reliability as an income provider for retirees. Don’t worry about credit losses when a deep recession comes. About 50% of its loan portfolio is insured. Similarly, the bank has a sizeable loan loss provision.

CPP is not enough

The older you are, the more you should focus on income sources other than pensions. Your CPP is okay as a replacement income but not enough to live on when you retire. Believe it.

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 Christopher Liew has no position in any of the stocks mentioned. The Motley Fool recommends BANK OF NOVA SCOTIA.

More on Dividend Stocks

Payday ringed on a calendar
Dividend Stocks

Boost Your Monthly Dividend Income With This TSX Gem

A high-yield TSX gem in the real estate sector can boost your monthly dividend income.

Read more »

oil and gas pipeline
Dividend Stocks

Is Enbridge Stock a Buy for its 7.6% Dividend Yield?

Enbridge stock is a TSX giant that offers investors a tasty dividend yield of 7.6%. Is this high-dividend stock a…

Read more »

Early retirement handwritten in a note
Dividend Stocks

Retire Early With These 3 Canadian Passive-Income Stocks

Three Canadian passive-income stocks are smart choices for people with early retirement goals.

Read more »

Dividend Stocks

3 Dividend Deals You Won’t Want to Miss

Given their solid underlying businesses and stable cash flows, I believe three dividends stocks would be an excellent addition to…

Read more »

A worker gives a business presentation.
Dividend Stocks

For 6% Yields, Buy These 3 TSX Stocks Now

Companies like Enbridge offer high yields and are focused on elevating their shareholders’ value by bolstering dividend distributions.

Read more »

protect, safe, trust
Dividend Stocks

How to Invest $10,000 Today for Decades of Safe Passive Income

Want to earn safe and predictable passive income? Here are some ideas on how to invest $10,000 and earn +$400…

Read more »

protect, safe, trust
Dividend Stocks

Turn $15,000 Into Your Financial Safety Net

You can turn limited capital into a financial safety net by purchasing a high-yield stock paying monthly dividends.

Read more »

Dividend Stocks

Brookfield Stock: It’s Time to Buy the Dip

Brookfield (TSX:BN) stock is getting cheap. The time has come to buy the dip!

Read more »