Are you soon to be retired?
Are you contemplating whether to claim Canada Pension Plan (CPP) benefits at 60, 65, or 70?
If so, you have a big decision ahead of you. The longer you wait to take CPP, the more benefits you ultimately get. However, you may not be able to retire if you forego CPP benefits. Though you can technically claim CPP while working, you may wish to stop working as soon as possible. If that’s the case, then the “delay taking CPP” strategy won’t work for you.
Nevertheless, there are good reasons to delay taking CPP until age 65. Waiting until age 70 is a tall order, particularly if you’re experiencing health issues. But if you wait until age 65, you may enjoy much higher benefits than you would otherwise, without making that big of a sacrifice. In this article, I’ll explore two main reasons why you should consider delaying taking CPP until age 65.
Reason #1: You get more benefits if you wait
The main reason you should consider delaying taking CPP until age 65 is because you’ll get more benefits if you do so. You get an extra 0.2% in benefits every year for each year past 60 you wait. How much does that add up to? Potentially quite a bit. The average Canadian retiree gets just $811 per month in CPP benefits. The maximum CPP benefit if you start at 65 is $1,306 per month. It can go as high as $1,855 per month if you wait until age 70 — though, as I’ll show in the next section, that’s not viable for many people.
Reason #2: You will likely still be able to work at age 65
A second reason why you should delay CPP until age 65 is that you’ll probably still be able to work at age 65. Everybody is different; some people can still work at 70 while others can’t. If you find your health deteriorating in your 60s, it may be wise to take CPP rather than delay it until age 70 out of principle.
Don’t want to wait? Try this instead
If you don’t want to delay taking CPP until age 65, you can always invest in a Registered Retirement Savings Plan or Tax-Free Savings Account to supplement your retirement income. Investing in dividend stocks and interest-bearing bonds can provide you with steady cash income that keeps coming in year in and year out.
Consider Brookfield Asset Management (TSX:BAM), for example. It’s a Canadian financial services company whose shares have a 3.75% dividend yield.
A 3.75% yield means you get $3,750 in annual cash back on every $100,000 invested. That’s a pretty decent income supplement, and it could grow over time. BAM is one of the most profitable companies in Canada, with a remarkable 53% net income margin. Its predecessor company had a long track record of raising its dividend before it spun off Brookfield Asset Management as a separate company. BAM’s funds have compounded shareholder returns at 16% annualized over the last 10 years. That’s an excellent rate of return, and it could continue as long as Bruce Flatt is at the helm.
