Do you plan on retiring soon?
Are you hesitant to delay your retirement just to get your Canada Pension Plan (CPP) benefits to an acceptable level?
If so, you may want to consider other paths to increasing your retirement income. Delaying retirement is the most straightforward way to increase your CPP benefits, but the downside is it takes a long time. In this article, I will explore an alternative way to increase your retirement income, one that does not require delaying your retirement. First, though, let’s take a look at why boosting your CPP benefits takes such a long time.
Why it takes so long to boost your CPP
The reason why it takes such a long time to boost your CPP by delaying retirement is because CPP benefits are a function of how much you pay into the plan. CPP contributions come out of your paycheque and then come back to you (plus interest) at retirement. The more you pay in, the more you get out. In addition to waiting longer to retire, you can also boost your CPP benefits by working more hours, increasing your income up to the maximum pensionable amount. It always takes time to increase your CPP benefits, whether it’s by working more hours or waiting longer to retire.
What you can do instead
If you don’t like the idea of waiting years to increase your CPP benefits, you can try investing in a Registered Retirement Savings Plan (RRSP) and Tax-Free Savings Account (TFSA). RRSPs and TFSAs are tax-deferred/tax-sheltered accounts that keep your returns safe from the Canada Revenue Agency. By investing in them, you maximize your after-tax return.
What are some good investments to hold in your RRSP and TFSA?
Index funds are the logical place to start. Index exchange-traded funds hold diversified portfolios of stocks that minimize your risk. In investing, there are two kinds of risk: systematic and unsystematic. All investments have systematic (market) risk, but sufficiently diversified portfolios have almost no unsystematic risk. Index funds invest in such portfolios, making them very good investments for people who don’t want to spend too much time researching investments.
If you do want to invest in individual stocks, it might be wise to consider utilities like Fortis (TSX:FTS). Utility stocks tend to be relatively stable and low volatility, because they enjoy high revenue stability. Utility packages typically come as part of a house: you can’t back out, even if you want to. Additionally, people tend to use heat and light heavily, even during recessions. For this reason, utilities are among the safest and most dependable stocks around.
The majority of utilities enjoy the benefits mentioned above, but Fortis especially does. 98% of its revenue comes from regulated utilities. It has operations in Canada, Latin America, and the Caribbean. It invests heavily in growing its business. It has increased its dividend every single year for 49 years. If it achieves just one more annual dividend hike, it will become a “Dividend King.” Put simply, it’s stronger than your average utility stock. So, it’s worth considering for your retirement portfolio.
