The Motley Fool

CPP Pension Users: Here’s an Easy Way to Get 42% More Payments

Image source: Getty Images

COVID-19 is sidetracking short- and long-term objectives of future retirees. Canada Pension Plan (CPP) users in particular have misgivings about their retirement readiness due to the pandemic. To a great extent, many rely on the CPP payments for sustenance in the golden years.

Today, the prevailing mood is to move the retirement schedule to a later date. For people who did not save enough, receiving higher CPP payments will make a material difference in economic well-being. Fortunately, when there’s a will, there’s a way. You can get 42% more in pension payments if you have the determination to retire after 65.

Incentive to wait

About 95% of CPP users claim the payment at 65, although you can take it earlier at 60 if you have poor health, a shortened life expectancy, or urgent financial need. While it’s a rational decision, payments reduce by 36% (0.6% for every month before 65) permanently.

If you follow the herd, the average monthly CPP payment at age 65 is $672.87. Add your Old Age Security (OAS) maximum benefit, and you will receive a total of $1,286.40 monthly for life. But there’s an incentive for the patient pensioners.

Electing to defer the CPP until 70 is the practical move and an inexpensive way to bump up the payments. By doing so, it will increase by 42%, or 0.7% for every month before 70. It would be easy for healthy pensioners to take advantage of the incentive.

The harder step follows, which is to keep your financial health in tip-top shape throughout your retirement years. You need to assess your income sources carefully, or the harsh realities of retirement will blindside you.

The 10 Best Stocks to Buy This Month

Click here to learn more!

No regrets

When you take the retirement exit, there shouldn’t be any regrets. Transamerica Center for Retirement Studies came out with a study in 2018. The results show that 73% of retirees wish they’d set aside more money consistently. About 50% waited too long to get serious about retirement planning.

Typically, building a nest egg begins as early as 25 years old. It won’t require an optimal amount. Even at $25 a week, you can have a sizeable retirement fund by the time you reach 65 or 70. Invest the money as you go along and allow it to compound.

You can fill the CPP’s inadequacy by owning shares of Bank of Montreal (TSX:BMO)(NYSE:BMO). This investor-friendly bank stock has a dividend track record of 191 years. Assuming you have savings of $50,000 to invest, the quarterly income is $713.75. Given its current dividend yield of 5.71%, your money will grow to $200,388.05 in 25 years.

BMO is the logical choice of income-seeking retirees. The dividends are safe, and the fourth-largest bank in Canada will keep the cash flow coming in the face of recessions or as long as you need them.

Life transition

Don’t take the plunge if you’re not ready for a major life transition. You will find yourself in a tight financial situation if you were to depend on your CPP alone. Start creating retirement wealth with BMO while taking your sweet time waiting for higher CPP payouts. Two ways are better than one.

The 10 Best Stocks to Buy This Month

Renowned Canadian investor Iain Butler just named 10 stocks for Canadians to buy TODAY. So if you’re tired of reading about other people getting rich in the stock market, this might be a good day for you.

Because Motley Fool Canada is offering a full 65% off the list price of their top stock-picking service, plus a complete membership fee back guarantee on what you pay for the service. Simply click here to discover how you can take advantage of this.

Click Here to Learn More Today!

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.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss an important event.

Iain Butler and the Stock Advisor Canada team only publish their new “buy alerts” twice a month, and only to an exclusively small group.

This is your chance to get in early on what could prove to be very special investment advice.

Enter your email address below to get started now, and join the other thousands of Canadians who have already signed up for their chance to get the market-beating advice from Stock Advisor Canada.