Should you claim your Canada Pension Plan (CPP) at age 65 or wait till age 70? A decision every Canadian nearing retirement has to make. You should look at CPP from various angles to determine what is right for you. If you want to max out on your payout, waiting till 70 makes sense. The Canada Revenue Agency (CRA) increases your payout by 8.4% every year. That’s 42% more than what you would get at age 65. The average CPP payout at 65 was $758.23 in October 2023. A five-year wait could increase it to $1,076.6. But is waiting worth it?
In this article, we will discuss if it makes more sense to claim CPP benefits at age 65 and not delay it.
Five reasons to claim CPP benefit at age 65
The idea behind CPP is to protect all Canadians from inflation, poor investment returns and the depletion of their money if they live longer. Every Canadian should have sufficient money to fulfil their daily necessities. The CPP benefit grows alongside inflation and will continue till your death.
- You need money: If you don’t have sufficient investments and are having difficulty meeting expenses and finding a job at 65, you can claim CPP benefits. The CPP is to help you through these difficult times. If you get a job or a part-time gig later, you can probably use that money to enhance your passive income in your Tax-Free Savings Account (TFSA).
- You have low life expectancy: If you do not expect to live till 90 or 100, there is no point delaying CPP benefit till 70. It is better to start reaping the benefits of your 40-year CPP contributions while you are still alive, as the payout will continue till your last breath.
- You are single: You cannot pass the CPP benefit to children. It is either you or your spouse. If you are unmarried, the CPP payout will stop after your death. So, why not enjoy the government benefit for a longer time?
- Your spouse gets maximum CPP payout: If you are married, your CPP will go to your spouse after your death. Your spouse can only get the maximum CPP payout. But if your spouse already has a higher payout than you, you cannot pass on the advantage of a higher CPP payout by waiting till 70. You could consider waiting till 70 only if you want a higher CPP payout, as the benefit will end after your death.
- Higher income in retirement: If you have saved up a lot and have ample investments, it doesn’t matter whether you take the CPP at age 65 or 70.
Building alternative retirement income
The CPP benefit gives you financial backing if your savings are depleted or your retirement pool has dried due to bad decisions. The CRA knows that CPP is not sufficient. Hence, it offers other benefits like Guaranteed Income Supplement (GIS) and Old Age Security (OAS).
Instead of relying solely on government benefits, you should build various passive-income sources to complement CPP payout. While CPP and Registered Retirement Income Fund withdrawals are taxable, TFSA withdrawals are not. Hence, consider building a TFSA passive-income portfolio using low-volatility stocks that can keep your retirement pool safe.
You could consider investing in BCE‘s (TSX:BCE) dividend-reinvestment plan (DRIP). The telco increases its dividend every year, with some exceptions during the economic crisis when it paused growth. At least your accumulated dividend is intact. Telecommunication is the oil of the digital age and is likely to keep paying dividends for years. Moreover, the stock is not highly volatile. In the last 20 years, the stock has surged 74%, in sync with the TSX Composite Index.
BCE will grow your investment alongside the market, hedge your dividends against inflation with a 3-5% annual dividend growth, and compound your passive income with DRIP. In DRIP, you save on the brokerage and even get a discount from the company on the stock price.
While CPP can replace 33% of your average income, your TFSA passive income can add to your retirement income.
