To take CPP benefits, or not to take CPP benefits.
For Canadians on their 60th birthday, this is the question.
When you turn 60 years old, you become eligible to withdraw the Canada Pension Plan benefits you’ve accumulated over the course of your career. This is true whether you’ve retired or not. At first, it might seem tempting to withdraw your CPP right away. After all, who doesn’t like “free” money?
However, there are actually some good reasons to consider delaying taking CPP. First of all, the longer you wait to take benefits, the more of them you will receive per year. Second, CPP enhancement is currently underway and will further increase benefits paid to those who wait until the program is finished before taking benefits. In this article, I will explore CPP enhancement so you can determine whether it makes sense for you to wait until enhancement is over before you take your pension benefits.
What is enhancement?
CPP enhancement is a program that aims to make CPP payouts of up to one-quarter to one-third of a Canadian worker’s income. This is a major increase in projected benefits, and it will be achieved by two main measures:
- A progressive increase in CPP contributions over five years. CPP contributions were 5.1% of pensionable earnings in 2019, by the end of this year they will reach 5.9%.
- An increase in the maximum pensionable earnings. The maximum pensionable earnings threshold currently sits at $66,600. CPP enhancement will take it to $81,000.
These two measures combined will make the pool of CPP investments larger, and hopefully facilitate the planned increase in benefits.
One reason to take CPP benefits now
Despite the fact that CPP enhancement will increase CPP benefits, there is one good reason to take them today:
Cash flow needs.
If you’re already retired, you need all the cash you can get. If your investments and perhaps part-time work aren’t covering your expenses, you’re going to need that CPP now. Either that or you’ll have to return to work full time.
One reason to delay taking them
One reason why you should delay taking CPP – apart from the aforementioned increase in benefits – is because you may still be able to work for a while. If so, you may not need the benefits, making the delay in taking them a logical choice. If you continue working, you can invest some of your money in the stock market, providing dividends that can supplement your income while you’re still delaying your CPP cheques.
Consider Canadian National Railway (TSX:CNR) for example. The railway is one of the most reliable companies in Canada. CN has only one major competitor in Canada, giving it a strong competitive position. It has a very high net profit margin, about 29%. Finally, CNR has delivered steady dividend growth over the years. Over the last five years, CNR’s dividend has increased by about 11.9% per year. Over the last 10, it has grown by 14.1% per year! Truly, this is incredible dividend growth. And since CNR only has one competitor in a very lucrative industry, it will likely be able to keep up the growth going forward.
