Golden Years Gain: Your CPP Benefits at Age 70

CPP users delaying pension payments until 70 will receive substantial monthly income streams in the golden years.

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The Canada Pension Plan (CPP) is sound and rests on solid financial ground. According to National Bank of Canada, the legislated enhanced contribution rates are more than enough to finance the plan over the long term.

Based on the 31st CPP Actuarial Report, contributors will grow to 19.3 million by 2050 from 15.2 million in 2022. Also, retirement beneficiaries will grow from 0.8 million in 2022 to 8.9 million in 2050.

Most CPP users start pension payments at 65 (standard age), although you can request to receive it at 60 if there’s an urgent financial need. However, the consequence of claiming five years early is a permanent reduction of 36% (7.2% per year before 65). The gain is substantial if you can wait to collect or defer taking the benefits until 70.

Golden years gain

Not everyone receives the maximum monthly CPP payout ($1,364.60 as of October 2023), so let’s focus on the average. New retirement pensioners claiming at 65 receive $758.32 monthly. The CPP offers a strong incentive for people who are not in a hurry to start payments or want higher income streams in the golden years.

The pension payment will increase by 8.4% per year (0.7% per month) past age 65 or 42% overall. Thus, the monthly pension jumps to $1.076,81 or $12,921.77 annually instead of $9,099.84.

Not a retirement plan   

According to the Canada Pension Plan Investment Board (CPPIB), the “CPP is not a retirement plan” but a partial replacement only (25% to 33.3%) of pre-retirement earnings. Thus, the CPP fund manager advises users to look for other income sources to ensure a comfortable retirement. If you’ve been saving for the future, invest the money in income-producing assets like stocks.

Timbercreek Financial (TSX:TF) and Innergex Renewable Energy (TSX:INE) trade at $7.25 and $7.67 per share, respectively, but pay a 9.69% dividend. Hold them in a Tax-Free Savings Account (TFSA) for tax-free dividend income.

Conservative non-bank lender

Timbercreek maintains a conservative lending program. The $604.2 million mortgage investment company provides shorter-duration structured financing solutions (not more than five years) to commercial real estate investors. It lends against income-producing multi-residential, retail, and office properties in urban markets.

In the nine months ending September 30, 2023 (first three quarters of 2023), net income rose 25% year over year to $51.44 million. Its chief executive officer, Blair Tamblyn, said Timbercreek continues to generate strong interest income and expects increased commercial real estate activity when interest rates stabilize.

Long-term PPAs

Innergex is a 100% renewable energy company operating in Canada, the U.S., Chile, and France. It has a diversified portfolio of renewables (86 facilities), including run-of-river hydroelectric assets and wind, solar, and battery projects. The $1.57 billion independent power producer is on the road to profitability.

In the first nine months of 2023, net earnings reached $16.15 million versus the $38.5 million net loss a year ago. The long-term power-purchase agreements (PPAs), power hedge contracts, and short and long-term industrial contracts should deliver stable cash flows. Innergex’s PPAs have a weighted average remaining life of 13.1 years.

Boost your retirement income some more

Some CPP users delaying their pension by five years boost their retirement income further by starting Old Age Security benefits at 70. The delay incentive for the latter is a 36% permanent increase (7.2% per year past 65).

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Christopher Liew has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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