Canadian seniors continue to miss out on tens of thousands of dollars that could go straight toward their retirement income. This comes from only a very small few of Canadian seniors choosing to defer their retirement benefits. And it’s costing them big time.
Which payments?
Canadian seniors have had access to retirement benefits from the Canadian Pension Plan (CPP) starting in 1987. Furthermore, the Old Age Security (OAS) payments were added on as well in 2013. These benefits become available around when a person turns 60. And that’s also around when Canadians start taking out cash.
But the question is: why? Most Canadian seniors continue to work well into their 60s. Furthermore, Canadians on average are also now living well into their 80s. So these payments should be saved up and deferred so they can be used later. In fact, it practically costs money to take funds out.
Delay, delay, delay
By delaying your benefit payments while you’re still working, Canadian seniors can bring in perhaps tens of thousands of dollars. That’s because both CPP and OAS increase their payments each month you don’t take them out by a certain age.
For CPP, after you hit 65, those benefits increase by 0.7% each month up to a maximum of 42% by age 70. Meanwhile, if you decide to take them out between 60 and 64, those payments are actually reduced. As for OAS, payments starting rising by 0.6% each month, to a maximum of 36% by 70.
So if you decided to hold off until 70 and could take full advantage of those maximum payments? That could be an additional $10,168 per year of income at current rates. Of course that’s excluding clawbacks.
But…why?
So why are Canadian seniors given this option? Back in 2012, the federal government introduced the option of deferral for two reasons. First, the population continued to work longer. And many continue to choose to do so. This would go towards gradually increasing the mandatory retirement age when the Harper government introduced it. However, Trudeau nixed that idea, yet kept the deferral plan. So now Canadian seniors get the best of both worlds.
The one downfall is of course if a Canadian senior dies before they expect. If you only live to your 70s, then you, of course, miss out on all those payments. However, live into your 80s or 90s, then you are handsomely rewarded.
What if you need the cash?
If you don’t necessarily need all that cash from the government now, but could use some extra help, then passive income stocks are an excellent way to make up the difference. For me, I would recommend NorthWest Healthcare Properties REIT (TSX:NWH.UN).
NorthWest stock has proven again and again that it can withstand global volatility, bringing in rent even when other real estate investment trusts can’t. Furthermore, you can bring in significant income right now thanks to a high dividend yield of 5.71%.
If you’re a Canadian senior and you put $30,000 into this stock, you could be bringing in $1,746 in annual income without considering returns. If you choose to reinvest over the next decade before you turn 70, it’s even better! That $30,000 could turn into $92,670.82 with dividends reinvested at current growth rates.
So hold off on taking out those payments. That money may look good now, but wait a bit and that cash looks even better later.
