Securing financial security should be the top priority of everyone, whether retirement is near or years away. Most Canada Pension Plan (CPP) users feel confident about the future because CPP contributions return as a retirement pension.
Unfortunately, if you’re 65 and retiring today, the pension replaces one-quarter of average work earnings or only 25% of pre-retirement income. The enhancements began in 2019, although only those who work and contribute to the CPP in that year or later will benefit.
The CPP takeout decision is a sensitive issue to Canadians because it could improve or imperil retirement financial security. Based on published data, 95% of users start payments at the standard age of 65. The maximum monthly amount is $1,306.57, while the average payment to a new retiree is 811.21.
If you don’t qualify for the maximum, your annual CPP pension for life is $9,734.52. Your total retirement income, including the Old Age Security (OAS) plus $691 monthly, is $18,026.52. So why not consider a simple but legitimate hack to increase your CPP pension permanently by as much as 42%?
Start payments later
A safe and cheap strategy to boost your CPP pension is to start payments later. The condition with the delay option is to collect after 65, and the enticement is an 8.4% increase per year before 70. Hence, the monthly pension improves to $10,552 at age 66 and $13,823.02 in five years.
There’s nothing wrong with claiming the CPP at 65, as some users need the money to fund a lifestyle. However, starting the payments early or at 60 is a disincentive as the pension reduces by 7.2% per year before 65 or a 36% permanent decrease in five years.
Retirees with health concerns or shortened life expectancy take this option, although you lose protection against inflation. On the other hand, others who have retirement savings or no need for the money yet lean toward deferring CPP payments.
Investing in dividend stocks is one way to build additional retirement income while waiting for the CPP pension (and OAS) to kick in at 70. The stock market has inherent risks but astute income investors, even current retirees, own shares of Canada’s only dividend king.
Canadian Utilities (TSX:CU) is a no-brainer buy for its growing, uninterrupted dividend payouts. This top-tier utility stock has raised its dividends for 51 consecutive years. A company with a dividend growth streak of 50 years, regardless of sector, earns dividend king status.
The $9-billion diversified global energy infrastructure company can sustain dividend growth because of its highly contracted and regulated earnings base. Expect the business to grow further as management plans to invest around $1.4 billion in regulated utilities from 2023 to 2025.
Despite the 0.9% decline in adjusted earnings in Q1 2023 to $217 million versus Q1 2022, management said it indicates the business’ overall stability. You have peace of mind at $36.45 per share (+1.8% year-to-date) and a 4.89% dividend yield.
Not an easy decision
Postponing CPP payments past 65 and until 70 increases the lifetime pension while protecting seniors against inflation risks. The hack is simple, but the decision is hard, if not challenging.