Should You Start Your CPP Pension at Age 60 or 70?

You can delay the CPP until the age of 70 by creating multiple income streams and investing in blue-chip dividend stocks.

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Soon-to-be retirees are in a bit of a flux, given rising interest rates and elevated inflation levels in recent months. You need to be certain and armed with enough savings in retirement to lead a comfortable life.

Canada has a couple of pension plans, such as the Canada Pension Plan (CPP), which will help you earn regular income in retirement. But the CPP aims to cover just 25% of your pre-retirement earnings (for older retirees) and 33% (for the younger generation), which might not be enough given current inflation rates.

For instance, the average CPP payout in 2023 is less than 800/month, while the maximum payout is capped at $1,306.57. While the CPP is indexed to inflation, you can also decide when to start this payment.

65 is the default age to start CPP payments

The standard age at which you can start receiving the CPP is 65. So, if you receive the average CPP amount, your annual payout will be around $9,000.

However, some individuals may choose to receive the CPP at the age of 60. In these cases, the CPP amount reduces by 36%, which is quite significant.

Alternatively, retirees with multiple streams of cash flows can delay the CPP until the age of 70 and enjoy higher payments. For every year the CPP is delayed, the payment increases by 8.4% each year. So, the CPP pension amount increases by 42% for those who start the payouts at 70.

Supplement your CPP with dividend stocks

It’s not advisable to just rely on your Canada Pension Plan in retirement. One low-cost way to create a passive-income stream to supplement the CPP is by investing in blue-chip dividend stocks such as the National Bank of Canada (TSX:NA).

In the last 20 years, shares of the National Bank of Canada have returned 1,190% after adjusting for dividends. In comparison, the TSX index has surged over 400% since August 2003. Despite its outsized gains, NA stock currently offers shareholders a tasty dividend yield of 4%.

National Bank pays shareholders an annual dividend of $4.08 per share, and these payouts have risen by 9.2% annually in the last 19 years.

Priced at 10.6 times forward earnings, NA stock is very cheap, given its high dividend payout and estimated earnings growth of 7%.

The sixth-largest bank in Canada, National Bank, should be on the watchlist of income-seeking investors. Valued at $33 billion by market cap, National Bank reported revenue of $9.7 billion and net income of $3.4 billion in fiscal 2022 (ended in October).

National Bank has $404 billion in total assets and ended 2022 with a return on equity of 18.8%. If we exclude its provisions for credit losses, NA increased adjusted earnings by 11.4% year over year in fiscal 2022.

Despite a tepid lending environment, NA increased sales in the personal and commercial banking segment by 14% in the second quarter, driven by margin expansion and an increase in customer deposits. This offset a slowdown in mortgage loans.

With a robust capital tier-one ratio of 13.7%, National Bank of Canada is well positioned to weather an economic downturn. It also enjoys a well-capitalized balance sheet, with deposits rising 17% in the last 12 months.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Aditya Raghunath has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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