“To delay taking CPP benefits, or not to delay taking CPP benefits.”
For Canadian soon-to-be retirees, that is the question.
As you probably know, you get more CPP benefits per year if you delay taking your pension. On the other hand, if you take your CPP pension as soon as possible (at age 60), you get more years of benefits. Which option pays off more over your lifetime depends on how long you live. Nevertheless, getting extra CPP benefits each year can be worth it, especially if you think you’ll be able to work until 65 or 70. In this article, I’ll explore whether you should delay taking CPP benefits, or take them right away at age 60.
Up to $500 per month
You can get about $500 per month in extra CPP benefits by delaying taking CPP until age 65 instead of taking them immediately at age 60. The government of Canada estimates that the average Canadian who takes CPP at 60 will get about $770 per month in extra benefits. If you take CPP at age 65, the amount can be as much as $1,306 per year. So, we’re talking about $536 in extra monthly benefits here. That’s an extra $6,432 per year!
Should you take CPP now or wait until 65?
As we’ve seen, delaying taking CPP benefits can get you a big boost in your monthly payout. However, the decision isn’t as simple as it seems. In order to delay taking CPP benefits to age 65, you’ll need income in the interim period from 60 to 65. Not everybody has this. If you have a generous employer-sponsored pension, you may be able to get by on that. Otherwise, you may have to work from age 60 to 65. If that doesn’t sound like fun to you, read on, because in the next section I will explore one way that you could earn some income from 60 to 65 while you wait for your CPP benefits.
How to invest for a prosperous retirement
If you don’t want to work between age 60 and 65, but you do want to delay taking your benefits, you could consider investing your money. By investing your money in stocks and index funds, you can establish a regular income stream that pays you quarterly, or even monthly. The income can really pile up if you hold your stocks in a tax-free savings account (TFSA), which spares you dividend and capital gains taxes.
Consider Alimentation Couche-Tard (TSX:ATD), for example. It’s a Canadian gas station company whose dividend has steadily been rising over the years. The stock only yields about 0.8% today, but the payout has increased by 21.5% per year over the last five years. If the company keeps hiking its dividend at the pace it has been, shareholders in the future may enjoy a high yield-on-cost.
Will ATD’s management actually keep raising the dividend?
Potentially, yes!
ATD’s executives have a prudent acquisition strategy that involves re-investing profits for growth. Instead of borrowing heavily to do deals, they use last year’s profits to pay for acquisitions this year. This results in a low yield, but strong compounding. If management keeps up its tradition of “bootstrapping” its business, it may deliver many more years of dividend growth in the future.
