The CPP, or Canada Pension Plan, is a retirement benefit available to Canadians that basically aims to replace 25% of an individual’s pre-retirement earnings. CPP enhancements first started in 2019, allowing you to increase your contributions towards the retirement fund each year, thereby increasing these payouts in retirement.
So, once the CPP enhancement is phased in by 2025, it will replace around 33% of your annual income, while increasing pension amounts by 50% for those making enhanced contributions for 40 years.
The standard retirement age to begin CPP payouts is 65. In 2023, the maximum CPP payment you could receive as a new 65-year-old retiree is $1,306.57, while the average monthly amount is much lower at $811.2. On an annual basis, the average Canadian retiree will receive around $9,734, which is not enough to lead a comfortable life in retirement.
Delay CPP payouts and boost your retirement benefit
One of the salient features of the CPP is its flexibility. You can start your CPP at 60 or defer it until you are 70 years old, based on your financial needs. If you begin the CPP at 60, your payout will fall by 36%, or 0.6% each month.
Alternatively, for every month the CPP is delayed after the age of 65, your benefit will increase by 0.7%. So, if you delay the CPP until 70, your payout will increase by a whopping 42%.
It makes sense to delay the CPP if you have enough income streams to sustain your expenses and are in excellent financial health.
How can you delay the CPP payment?
Canadians need to create additional income streams to supplement or delay the CPP payments. One low-cost way to earn passive income is by investing in blue-chip dividend stocks such as Toronto-Dominion Bank (TSX: TD), which currently offers you a forward yield of 4.8%.
TD is the sixth-largest bank by total assets in North America and is valued at a market cap of $152 billion. The ongoing banking crisis in the U.S. has dragged valuations of bank stocks lower in recent months. Currently, TD Bank stock is down 23% from all-time highs, allowing you to buy the dip and benefit from a tasty yield right now.
Despite a challenging macro-environment, TD Bank reported a net income of $15.7 billion in the last four quarters, valuing the stock at 10 times earnings which is very reasonable. Armed with a well-capitalized balance sheet, TD Bank has a common equity tier-one ratio of 15.5%, which is among the highest compared to other banking peers.
TD Bank is well diversified and generates 41% of earnings from the Canadian market followed by the U.S. at 31%. Its investment in Charles Schwab generates 7% of earnings, while verticals such as wealth management and insurance account for 13% of the bottom line.
While bank stocks are cyclical, TD Bank has managed to increase quarterly dividends from $0.14 per share to $0.96 per share in the last 20 years, indicating an annual increase of over 10%.
Due to its compelling valuation and strong financials, analysts remain bullish on TD Bank stock and expect it to surge around 20% in the next year.
