Are you approaching retirement age? Do you want to maximize your Canada Pension Plan (CPP) benefits so you get more than the $811 per month the average Canadian gets?
If so, I have some good news and some bad news for you.
The good news is that you can boost your CPP benefits. The bad news is that you need to delay retirement and work a lot of hours in order to do it. In this article, I will explore two different methods for getting more retirement income: delaying retirement and investing.
Method #1: Wait longer to retire
Waiting longer to retire is the most obvious way to boost your CPP benefits. Your CPP benefits are a function of how long you worked and at what age you retire. The average Canadian retiree receives $811 per month in CPP benefits. If you delay taking benefits until age 65, you can get up to $1,306 per month. If you wait until 70, you can get even more than that.
The increase in CPP you can get by waiting until age 65 or 70 is substantial. However, it takes a lot of waiting and working to get there. If you are coming down with an illness and want to enjoy your golden years in peace, it’s a tough sell.
Fortunately, there is a tried-and-true method for generating extra income in retirement. It technically doesn’t “boost” your CPP payments, but it does supplement them, adding to your cash flow in retirement. In the next section, I will explore that method in detail.
Method #2: Supplement your CPP by investing
One great way to supplement your CPP benefits is to invest your money. I don’t mean timing bets on stock market prices, I mean investing in assets that pay regular dividends. You can buy index funds like iShares S&P/TSX 60 Index Fund and get perhaps 3% of your investment back each year.
If you want to invest in individual stocks, you could consider companies like Fortis (TSX:FTS). Fortis is a utility company that generates steady, recurring revenue from customers paying their heat and light bills. Utilities in general are known for high revenue stability because of their locked-in, long-term contracts. This is borne out in Fortis’s earnings. In 2008 and 2020 — both recession years — Fortis achieved modestly positive earnings growth. Many other companies shrank or even became unprofitable in the same period.
Fortis is well known for its excellent dividend track record. The company raised its dividend every single year for 49 consecutive years. It is aiming for 6% annual dividend hikes for each of the next two years. If it delivers on these hikes, then it will achieve the title of “Dividend King” — a company that hikes its dividend for 50 consecutive years.
In general, you should have special insights into individual companies if you plan to invest in them, as stock picking is a very competitive game. It’s not for everyone, but if you have some insight into an industry or product category, it’s not a crazy thing to do. Just remember to diversify your portfolio adequately — the Motley Fool generally recommends a minimum of 25 stocks.
