Are you considering taking CPP benefits, but wondering whether you could earn more by delaying taking them?
If so, you could start by thinking about what age you take benefits at. The longer you delay taking CPP benefits, the more you ultimately collect. You collect 7.2% less CPP for each year prior to age 65 you are taking benefits. You collect 8.4% more CPP for each year you delay beyond age 65, up to a maximum of 42% at age 70. There is good reason to delay. So without further ado, here’s the average CPP benefit at age 60 – and how much you can gain by delaying taking benefits.
$485.33
Although the Canada Pension Plan board does not report an “official” average for those taking benefits at age 60, it does quote a figure for those taking CPP benefits at age 65: $758.32. We can come up with a rough estimate of what you’d get by taking CPP at age 60 by starting with this figure – $758.32 times 36% is $272.99. Subtract that from $758.32 and you’re left with $485.33. That’s the average amount collected by a Canadian CPP at age 60, assuming they are otherwise identical to the average Canadian taking CPP at 65.
Of course, we’re making a lot of assumptions here. We can’t say for sure that the average Canadian taking CPP at 60 is identical to the average Canadian taking CPP at 65. The average Canadian taking CPP at 60 might have different annual earnings, for example. But considering that the CPP benefits formula isn’t that complex, it’s likely that the average monthly CPP at 60 is close to what the “36% lesser” formula for individual benefits would predict.
How to supplement your CPP
If the CPP benefit you’d get at age 60 disappoints you, you may wish to keep working and investing in an RRSP until age 65. The benefits of this strategy are threefold:
- The RRSP contributions lower your taxable income.
- The investments provide income.
- Working longer increases your CPP.
What kinds of things should you invest in while building up your retirement nest egg? While I can’t give individual financial advice, I can give you an example of a stock that did well in the past, along with the characteristics it had during its run:
Fortis Inc (TSX:FTS). Fortis is Canadian utilities stock that has a 4.41% dividend yield. The dividend provides a buffer against market volatility assuming that it can be sustained.
You can never just assume that a stock’s dividend can be sustained – these aren’t exactly Canada bonds we’re talking about – but Fortis has an excellent dividend track record. Specifically, it has raised its dividend every year for 50 consecutive years, making it a “Dividend King.” Despite all of that dividend growth, Fortis has a relatively modest 70% payout ratio. That means it only pays out 70% of its profit as dividends, so it can afford to keep paying its dividend even if earnings fall a little. It also means that the company keeps 30% of its profit each year to re-invest in its business. On the whole, Fortis is a pretty good company.
