The widespread talk about boosting Canada Pension Plan (CPP) payments confirms that the benefit is insufficient to cover financial needs in retirement. No less than the CPP fund manager, the CPP Investment Board (CPPIB) emphasized that the pension is not a retirement plan. The taxable benefit replaces part of your income (25%) when you retire today.
Even if the Old Age Security (OAS) kicks in at 65, financial dislocation is still possible with the combined pensions. However, working Canadians and future retirees can avail of a financial incentive and not collect the CPP at 60 or 65. The Canada Revenue Agency (CRA) dangles a reward for users collecting benefits after 65.
Permanent increase
The delay option is worth considering because only a few can receive the maximum CPP benefit of $1,306.57 (2023 figure for new beneficiaries). You must have contributed at least 39 years to the fund to qualify. Otherwise, you’ll receive, at best, $760.07, the average CPP payout (as of April 2023).
Regarding the reward, the CPP payout increases by 0.7% for every month of delay. If you delay three years past 65, the monthly payment climbs 25.2% (0.7% x 36) to $883.99. However, if you go the distance or collect at age 70, the permanent percentage increase is 42% (8.4% x 5).
Instead of $8,472.84, you’ll receive $12,031.43 annually or $3,558.59 more every year. There’s no benefit to waiting after 70; claiming your CPP early or at age 60 reduces the benefit by 36%.
Augment with dividend income
If finances allow, you can augment the CPP or boost your retirement income with dividend earnings. Automotive Properties (TSX:APR.UN) is ideal for yield-hungry investors.
This $570.99 million real estate investment trust (REIT) pays a lucrative 6.77% dividend. Assuming you purchase 2,000 shares ($11.64 per share), your 23,280 cash outlay will transform into $1,576.05 in passive income, or $131.33 monthly.
Specialty REIT
The specialty REIT is growth oriented and owns income-producing automotive dealership properties (76 total). Besides the strong fundamentals of Canada’s auto retail industry, Allied Properties boasts an attractive leasing profile. The weighted average lease term of the properties is 10.7 years (as of March 31, 2023).
Allied Properties’s portfolio carries or represents 32 manufacturing/global brands. All leases are long-term, triple-net leases with contractual rent escalations. Among its lead tenants are Dilawri, AutoCanada, Tesla, and Lithia Motors, one of North America’s largest auto dealership groups.
According to management, Allied Properties is well positioned for an environment of elevated inflation. The auto retail industry is resilient and one of Canada’s largest retail segments. Four profit centres (parts, service & repair, finance & insurance, new and used vehicle sales) contribute to revenues. Notably, effective occupancy is 100%.
In the first quarter (Q1) of 2023, rental revenue and net operating income (NOI) increased 12% and 10.9%, respectively, to $22.87 million and $19.45 million versus Q1 2022, although net income declined 42.9% year over year to $16.96 million. Its president and chief executive officer Milton Lamb expects solid performance this year with the expanded property portfolio and fixed, consumer price index-adjusted rental growth.
Comfortable lifestyle
Canadians will not retire penniless because of the CPP (and OAS). However, boosting the CPP payout and earning passive income from dividend stocks assures a comfortable retirement lifestyle.
