Do you feel like you can’t wait until age 65 to retire?
If so, you may have to settle for a fairly meagre amount of CPP.
According to the Federal Government, the average Canadian retiree’s CPP payment is a mere $811 per month. That’s not enough to pay rent in most Canadian cities – let alone all of your expenses.
The main way to increase your CPP benefits is to wait longer to retire. You can get up to $1,306 if you wait until age 65, more than that if you wait until age 70. Generally speaking, waiting longer to retire is the only way you can maximize your CPP payouts. However, it is possible to supplement your CPP with investments, as I will explore in this article.
Why it takes so long to increase your CPP
The reason why it takes so long to increase your CPP is because CPP benefits are a function of how long you worked, as well as your earnings. If you still have a few years to go until retirement, you could possibly boost your CPP benefits by working a lot of overtime, or getting a promotion. This only works up to the maximum pensionable amount, though. If you’re above the maximum earnings from which CPP contributions are taken, then you can’t increase your CPP payouts this way. If you’re already earning $100,000 per year, then waiting longer to retire is the only way to boost your CPP.
How investing can supplement your CPP payouts
While you cannot easily or painlessly boost your CPP payouts, you can supplement them by investing. By investing in dividend-paying stocks, bonds and guaranteed investment certificates (GICs), you can get steady cash flows coming in in retirement.
The safest approach to investing is to buy index funds like the iShares S&P/TSX 60 Index Fund. Such funds are extremely diversified, limiting your exposure to severely bad outcomes at any one specific company.
Should you wish to spice up your portfolio with individual stocks, you may wish to look into high-quality names like Brookfield Asset Management (TSX:BAM). Brookfield Asset Management is a highly profitable company with some of the highest margins in Canadian business. It manages other peoples’ money in exchange for fees, limiting its risk exposure. Investors can gain exposure to unique and “alternative” asset classes, as it offers a lot of differentiation compared to typical stock mutual funds. Finally, BAM stock has a decent 3.83% dividend yield, and the yield has been rising over time. You should never invest all of your money in one stock, even if the company is a very good one. However, Brookfield Asset Management might merit inclusion in a diversified portfolio.
Foolish takeaway
It takes a long time to boost your CPP benefits. Fortunately, you don’t have to. If you have a decent amount of savings, and a willingness to take some calculated risks, you can supplement your CPP with a dividend portfolio, and potentially earn enough to retire on. It takes some money to get started, but it can work out in the long run.
