Canada Pension Plan (CPP) disability benefits aren’t as well known as CPP pension benefits, but they are valuable to many Canadians. The “benefit” is a monthly payment you can get from CPP, even if you’re too young to draw your pension benefits. You do not have to be 60 in order to receive the benefit. Also, unlike taking CPP early, taking CPP disability benefits does not reduce your pension benefits. However, the eligibility criteria for the program are somewhat complex.
In this article, I will explore the CPP disability benefit and whether taking it is a good idea for you.
What are CPP disability benefits?
CPP disability benefits are like CPP benefits but cover a period where you’re disabled rather than your retirement. The amount received is similar to CPP pension benefits and is based on how much you’ve paid into the CPP system. You do not need to be a particular age to draw CPP disability benefits. You do, however, need to meet certain eligibility criteria.
How to tell if you’re eligible
In order to be eligible for CPP disability benefits, you must
- Have a disability that prevents you from working;
- Be under 65;
- Have contributed CPP premiums in the last four years; and
- Have earned at least $6,600 in the last year.
If you meet all of these criteria, you should be eligible for the CPP disability benefit.
Not eligible? Here’s what you could do
Receiving CPP money before 60 might seem enticing, but it’s important to remember that CPP disability benefits are what they sound like: a benefit for disabled people. If you aren’t being prevented from working by a disease, injury or handicap, then Service Canada will likely deny your application for CPP disability benefits.
That might sound like a drag, but if everybody could get CPP disability benefits, the program would fail in its mission to help disabled Canadians. The drag on the system would result in extraordinarily long times to process applications.
Fortunately, you do not necessarily need government benefits like CPP to get some passive income going. By investing in stocks, bonds and ETFs, you can get some cash income flowing into your account in short order. You do need substantial savings for such income to add up to much, but you can build your portfolio over time, so that, after five or 10 years, you have a decent income stream coming in.
Consider Fortis (TSX:FTS), for example. It’s a Canadian utility stock with a 4.3% dividend yield. If you invest $100,000 in the stock, you should get $4,300 in cash back each year, assuming the dividend doesn’t change. Historically, Fortis’ dividend has changed: it has gone up. Just this week, the company announced its earnings and did its 50th consecutive dividend hike, making FTS Canada’s one and only “Dividend King.”
Fortis stock has rewarded investors handsomely over the years. If you’d bought the stock 10 years ago and reinvested all the dividends, you’d be sitting on an 11.8% compound annual gain today. The track record speaks for itself, and the dividend yield is high enough that the investment is worth it based on income alone.