The standard retirement age in Canada is 65 and it’s also the standard age to receive retirement benefits such as the Canada Pension Plan or CPP. However, depending on their wants and financial situation, Canadian residents have the option to begin the CPP payout at the age of 60 or delay it until the age of 70.
For every month the CPP payment is advanced, it reduces by 0.6%. So, the CPP payment will decline by 36% for someone starting it at the age of 60. So let’s see certain circumstances when it makes sense to start the CPP at age 60.
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When should you claim the CPP at 60?
A voluntary benefit reduction in the pension amount may be a non-issue if done for the right reasons. The CRA has offered Canadian seniors an early payout option to deal with uncertainties such as unemployment. Moreover, an early CPP payday is advantageous for residents who didn’t work between the age of 55 and 60.
Additionally, individuals wrestling with health issues and a shorter life span can claim the CPP at 60. For instance, according to retirement planners, 60 is the ideal age to start the CPP for those who don’t expect to live over the age of 69.
Finally, high income retirees can begin the CPP early to avoid clawbacks on other pension plans such as the OAS or Old Age Security.
Focus on long-term investing
Whether you begin the CPP at 60, 65, or 70 should be irrelevant, as you should ideally focus on creating multiple streams of income in retirement. For example, the maximum CPP payout in 2024 is less than $1,500 per month, and the average amount is much lower, which is not enough to lead a comfortable life in retirement.
It’s crucial to supplement your CPP with other income sources. One low-cost way to start a passive income source is by investing in blue-chip dividend stocks such as Enbridge (TSX:ENB). Why blue-chip stocks? Well, because dividend payouts are not guaranteed, and blue-chip companies generally enjoy a wide economic moat, predictable cash flows, and a widening earnings base. These factors enable companies to maintain and even grow dividends across market cycles.
Enbridge has raised dividends every year since 1995. In this period, its dividends have increased by 10% annually. Today, it pays shareholders an annual dividend of $3.66 per share, translating to a forward yield of 7.66%.
Enbridge is among the largest energy infrastructure companies in the world. Trading at an enterprise value of $182 billion, Enbridge is a TSX giant with an expanding base of cash-generating assets. The majority of ENB’s cash flows are tied to long-term contracts, which are indexed to inflation.
Priced at 17 times forward earnings, ENB stock is cheap and trades at a discount of 15% to consensus price target estimates. After adjusting for dividends, total returns will be closer to 22%.
Enbridge is an example of a blue-chip dividend stock. You should identify other companies with an attractive yield and an expanding earnings base to diversify your portfolio further and lower overall risk.
