If you view retirement as a long and enjoyable journey, you must make sure your backpack wonât run out of provisions. Canadian Pension Plan (CPP) users look forward to the day they finally live their dreams. Excitement builds up as you approach the retirement exit.
The CPP is guaranteed income for life, and most retiring Canadians will rely on the pension for their sustenance in the sunset years. You can start payments as early as 60 and then wait for your retirement income to increase when the Old Age Security (OAS) begins at age 65.
In the retirement years, your CPP (plus OAS) is the provision. However, the pension may only fill 25% to 33% of your backpack. The journey is full of surprises and the harsh reality that you might well run out of resources to cover unforeseen expenses along the way.
Preparation is the key to make retirement life pleasant and problem-free. The following are three ways to ensure your backpack is full in every leg of the journey.
Delay your CPP
The CPP pegs the standard retirement age at 65, and the average monthly pension amount is $619.75 (as of January 2021). Users with urgent financial needs or health concerns usually take the pension when it becomes available at 60. However, the annual amount reduces by 36% permanently with the early option.
If youâre in excellent health, you can take advantage of the delay optionâs incentive. When you start payments at 70, the annual amount increases by 42% from $7,437 to $10,560.64. You can do the same with the OAS. The voluntary deferral to 70 will increase the annual benefits by 36%.
Create a debt repayment plan
CPP users on the cusp of retirement should create a debt repayment plan rather than obtaining new loans. If necessary, be more structured and go for debt consolidation. A fixed interest rate and a fixed payment amount over a specified period will allow for better cash flow or budget planning. The goal is to free up more cash whenever possible.
Save and invest
Apart from controlling spending, your free cash should always go to savings. When you have more money in the bank, let the cash work for you rather than leaving it idle. Invest in companies with low-risk business models offers capital protection and pays lasting dividends. Fortis (TSX: FTS)(NYSE: FTS) in the utility sector has bond-like features.
The $25.92 billion utility company operates through regulated (electricity and gas) and non-regulated (energy infrastructure) assets. What appeals the most is that virtually 99% of earnings come from regulated assets. Hence, Fortis is practically a cash cow and a dividend machine.
At $55.19 per share, the recession-resistant stock pays a decent 3.66% dividend. Fortis’s 47 consecutive years of dividend increases is another compelling reason to make this stock a core holding. By 2023 and 2025, its rate base will increase to $36.4 billion and $40.3 billion, respectively. No wonder management plans an annual 6% dividend growth through 2025.
Lifetime provision
Current retirees who did not prepare well lament not having saving enough for retirement. Today, CPP users have the choice to bring a mini or full-size backpack in their retirement journey. The best move is to save money regularly and put them in assets that provide a lifetime provision.
