CPP Pension Users: Should You Start Your Payments at 60 or 65?

CPP users must look at the pro and cons before deciding to start payments at 60 or 65. But either way, retirees need investment income from a solid dividend payer like the Emera stock to enjoy a comfortable retirement.

| More on:
retirees and finances

Image source: Getty Images

The day will come when Canada Pension Plan (CPP) users will have to firm up retirement decisions. Financial security is the primary goal of would-be retirees because you mustn’t outlive your retirement savings. The CPP pension is guaranteed income for life, although the program is flexible as to payment options.

While life expectancy could be a deciding factor, sometimes it’s practical not to wait for the standard retirement age or 65. Some CPP users claim the pension when it becomes available. You too can after one month after you turn 60. Between the two options, which is the better deal?

Standard claim

The CPP pegs the retirement age at 65. On average, the monthly pension is $689.17 per month (as of October 2020). Thus, expect an annual stipend of $8,270.04 for life. If you collect your 65 but would still work until 70, you’re no longer required to contribute to the CPP.

Taking your CPP and OAS together at 65 makes sense. Your retirement income should bump up by $7,384.44 because you can also take the Old Age Security (OAS) benefits at 65. For 2021, the monthly OAS benefit is $615.37. However, you can consider delaying both until 70 if you’re healthy and expect to live past the average life expectancy (82.66 years) in Canada.

Early claim

The early option has a pitfall, however. Your pension payment will reduce by 36% permanently, so it means there’s less money in your pocket when you retire. The reduction is 7.2% per year before 65. If the average CPP annual pension at age 65 is $8,270.04, drawing your CPP at 60 results in a $2,977.21 haircut. Thus, you’ll subsist on only $5,292,83 in retirement.

For CPP users with health issues or urgent financial needs, the early option is attractive, if not the most practical. Also, if you have other income sources to compensate for the permanent reduction, there shouldn’t be a problem. Furthermore, you get a head start in enjoying a quality of life while you’re best able.

Excellent income source

If you socked away money in the bank, let the money work for you. Use your savings to invest in reliable income providers like Emera (TSX:EMA). This utility stock pays an incredible 4.79% dividend. Your investment income can boost your retirement income and enable you to maintain your standard of living.

Emera is an excellent source of retirement income because it has a portfolio of regulated utilities. It means this $13.19 billion company will generate cash flows regardless of the market environment. Currently, Emera is shifting to a more regulated structure. Soon, 95% of future earnings will come from regulated operations.

Further, management plans to reallocate Emera’s capital toward robust and fast-growing businesses. Investors can expect the rate-based growth of its portfolio to improve dramatically. Hence, market analysts forecast the price to appreciate by 28.1% to $68 in the next 12 months.

Start a comprehensive plan

Now that you have a snapshot of your CPP pension at 60 or 65, the next step is to look for ways to create other income. Retirement life would be harsh if you were to rely on your CPP (and OAS) alone. Current retirees lament not saving enough for retirement. Have the foresight and start a comprehensive retirement plan.

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 EMERA INCORPORATED.

More on Dividend Stocks

Two seniors float in a pool.
Dividend Stocks

TFSA: How to Earn $1,890 in Annual Tax-Free Income

Plunk these investments into your TFSA to earn passive income and avoid the taxman.

Read more »

Engineers walk through a facility.
Dividend Stocks

1 TSX Stock I Wouldn’t Touch With a 10-Foot Pole

AtkinsRéalis (TSX:ATRL) is one TSX stock I'd never invest in.

Read more »

edit Woman in skates works on laptop
Dividend Stocks

3 No-Brainer Stocks to Buy Under $30

These three stocks all offer a huge deal for investors looking for dividends, as well as growth that will last.

Read more »

You Should Know This
Dividend Stocks

How to Convert a $300 Monthly Investment Into $338 in Monthly Income

If you want a certain amount in monthly passive income, invest a similar amount today and leave the rest to…

Read more »

Increasing yield
Dividend Stocks

3 Income Stocks With Big Yields to Consider in April 2024

If you haven’t yet made your March investments, here are three income stocks to buy the dip and lock in…

Read more »

Senior Man Sitting On Sofa At Home With Pet Labrador Dog
Dividend Stocks

RRSP Investors: Don’t Miss Out on This Contribution Hack!

This hack has so many benefits for you -- not just when you put it in your RRSP but for…

Read more »

A red umbrella stands higher than a crowd of black umbrellas.
Dividend Stocks

Passive Income: 2 Safe Dividend Stocks to Own for the Next 10 Years

Dividend stocks such as Manulife and Fortis can help you generate a stable and recurring passive-income stream.

Read more »

Young woman sat at laptop by a window
Dividend Stocks

3 Dividend Stocks Everyone Should Own for the Long Haul

For investors looking for top-tier dividend stocks to buy and hold for the long term, here are three of my…

Read more »