The Canada Pension Plan (CPP) was introduced by the government of Lester B. Pearson in 1965. This monthly retirement pension aimed to provide a more concrete social safety net for Canadian retirees. Similar programs were adopted by Western governments in the post-war era, contributing to sharp declines in poverty and a rise in living standards.
Today, I want to discuss how pre-retirees should strategize as changes have been pushed forward for the CPP. Canadians have the chance to boost their CPP income, but they should also weigh the strategic alternatives. Let’s jump in.
Here’s how the CPP has changed
In 2017, the Justin Trudeau-led Liberal government introduced significant reforms to the CPP. The stated aim of the federal government and its provincial counterparts was to enhance the CPP in response to higher costs of living and a marked decline in defined-benefit pension plans for Canadians.
How pre-retirees can look to bolster their CPP
Canadians must be at least 60 years of age to apply for the CPP. Moreover, you must have made at least one valid contribution to the program. The standard and recommended age to start receiving your CPP is 65, which is the target retirement age for most Canadians. Canadians may wait as late as the age of 70 to apply for the program.
The decision to apply for the CPP should not be taken lightly. Retirement is not one size fits all, and each Canadian is facing a unique situation. However, the longer you delay your CPP application, the higher your CPP income payouts will be when you finally do pull the trigger.
For example, the maximum monthly CPP payment is $1,306.57. That works out to an annual CPP payout of $15,678. Some of the reasons you may want to take the CPP early are that you need the money sooner rather than later, you are facing lower life expectancy due to health complications, or you are already pulling in reliable income from your registered investments.
However, if you delay your CPP application until the age of 70, you can take advantage of the work you have put in. Indeed, the longer you wait, the more your initial CPP payout will be. To qualify for the maximum CPP, you must contribute to the CPP for at least 83% of the time you are eligible between the ages of 16 and 65 for at least 39 years.
Pre-retirees: Here are two dividend stocks I’d target for the long term
The high cost of living in Canada has put more pressure on the average citizen to meet their obligations, and that is before making retirement-saving contributions. Fortunately, there are dividend stocks on the TSX that you can rely on to provide steady income over the long haul.
Canadian Utilities (TSX: CU) is the first Dividend King in the history of the Toronto Stock Exchange (TSX). A Dividend King is a stock that has achieved at least 50 consecutive years of dividend growth. This Calgary-based company is engaged in the electricity, natural gas, and retail energy businesses in the United States, Australia, and around the world. Its shares have plunged 12% so far in 2023.
This stock currently possesses a favourable price-to-earnings ratio of 15. Moreover, Canadian Utilities last paid out a monthly distribution of $0.449 per share. That represents a strong 5.5% yield.
Fortis (TSX: FTS) is another top utility stock that is on the cusp of becoming the country’s next Dividend King. It has achieved 49 straight years of dividend increases. That means it is one year away from wearing that crown. Fortis currently possesses an attractive P/E ratio of 18. Moreover, it offers a quarterly dividend of $0.565 per share, which represents a solid 4% yield.
Pre-retirees should consider snatching up dividend royalty like Canadian Utilities or Fortis before spending too much time agonizing over CPP payments.
