The standard retirement age in Canada is 65, and it’s also the standard age to receive the Canada Pension Plan (CPP) retirement benefits. However, CPP users can start payments early (60) or late (70), depending on personal circumstances or financial situation.
The early CPP take-up is detrimental because you lose 36% of the benefit permanently. However, collecting payments sooner rather than later could be a game-changer for others.
A game-changer at 60
Taking less amount for a long time doesn’t make financial sense. Nonetheless, voluntary benefit reduction is a non-issue and is the right decision for individuals with specific concerns.
The early option is best for seniors with immediate financial needs due to a lack of steady income, unemployment, or very little savings. It’s also advantageous to start payments at 60 for CPP users with employment gaps or who didn’t work between 55 and 60.
If shortened life expectancy and underlying health problems are primary considerations, claiming the CPP benefit when it becomes available is logical. Some retirement planners say 60 is the optimal age to take the CPP for people who don’t expect to live past 69.
Create retirement wealth
Based on the personal experiences of Canadian retirees, you are financially vulnerable if you rely solely on the CPP pension in retirement. But those who saved and invested early have strong chances of retiring early or at 60.
The CPP is a foundation in retirement but not a retirement plan. Since it will not replace all of your pre-retirement income, the CPP Investment Board recommends investing savings or extra funds to create retirement wealth.
If time is on your side, you can start small and purchase cheap but high-yield dividend stocks like Diversified Royalty (TSX:DIV) or Peyto Exploration & Development (TSX:PEY).
Multiple royalty streams
Diversified Royalty collects royalties from multi-location businesses and franchisors, including Mr. Lube and AIR MILES. Eight companies are in the royalty pool, and BarBurrito, Canada’s largest quick-service Mexican restaurant chain, is the latest addition.
The $392 million multi-royalty corporation intends to continue paying predictable, stable monthly dividends and increase the payouts over time if cash flow per share allows. At only $2.73 per share, you can partake of the hefty 8.98% dividend.
Elite growth stock
Peyto belongs to an elite group of growth stocks. The company recently celebrated 25 years of successful operations. At $12.04 per share, the total return in 3.01 years is 393.91%. Moreover, besides the generous dividend offer of 10.96%, the payout frequency is also monthly. The dividends should be safe, given the 63.33% payout ratio.
This $2.32 billion oil, natural gas, and natural gas liquids producer operates in Alberta’s Deep Basin. Peyto isn’t immune from commodity price and foreign exchange volatility. However, hedging future production with financial and physical fixed-price contracts helps protect some of its future revenue.
Misconception
The CPP fund is here to stay and designed for the long haul. Unfortunately, other pensioners take the early option for the wrong reasons. They think the fund will not last and fear the government will take their contributions, too.
