For millions of Canadian retirees, government pensions are their primary retirement income source. The Canadian Pension Plan (CPP) and Old Age Security (OAS) pension combined can offer a decent income. Still, while it’s enough to cover some necessities, it’s rarely enough to cover all retirement expenses.
Unfortunately, many people exacerbate the problem of an insufficient retirement income by making one critical mistake.
A critical CPP mistake
All Canadians contributing to CPP in their working years become eligible for this pension when they turn 65. However, CPP can be deferred till you are 70 or taken early when you are 60. While the former is a smart financial decision, the latter is a significant mistake that can reduce the CPP amount you receive by a significant margin.
You can slash your CPP payments by a maximum of 36% if you start taking it earlier. So, if you are eligible for $700 a month (if you wait till you are 65), you can reduce that amount to about $450 by starting your CPP pension at 60. That’s the amount you will always get.
Not only should retirees avoid making this mistake at any cost, but if their circumstances allow, defer taking out a CPP pension till they are 70 so they can increase the pension amount. Although they should also develop another income stream by investing their savings in the right stocks.
A telecom company
Telus (TSX: T), the second-largest telecom company in Canada and a decent 5G stock, is also among the most well-established dividend aristocrats currently trading at a massive discount. Telus usually offers a healthy combination of dividends and capital appreciation potential, and compared to other telecom stocks in Canada, it leans more towards growth than dividends.
However, thanks to the 35% discount the stock is currently trading at, its dividends have become even more attractive due to the inflated 6.5% yield. The price discount hasn’t resulted in a more attractive valuation, but it’s still an attractive pick. A stock like Telus, especially if you can divert a significant enough amount to it, can be a powerful source of passive income.
A utility company
Investors prefer utility companies in Canada for their stability and safe dividends. Hydro One (TSX: H) is not an exception per se because it’s also a compelling dividend payer that is currently offering a healthy 3.4% yield, but there are other attractive traits. It’s also a decent growth stock that has returned about 74% to its investors in the last five years alone.
Hydro One also has an edge over typical utility stocks. Since it dominates the rural areas of Ontario, a difficult and expensive market to break into, the chances of other competitors moving in on its territory are minimal.
Its collective return potential (dividends and growth combined) can prove to be a powerful asset, and it can help you build a sizable nest egg for your retirement.
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Foolish takeaway
Deciding when to start taking your CPP pension is an important part of your retirement planning. But even when maximized, the CPP and OAS pensions may not be enough to financially sustain you, and investments like Hydro One and Telus can be crucial for your financial survival in the retirement years.
