Why Claiming CPP at 60 Could Be a Game Changer

Here’s why it makes sense to begin the Canada Pension Plan payment at the age of 65.

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Canadians generally begin availing retirement benefits such as the Canada Pension Plan (CPP) at the age of 65, which is also the country’s standard retirement age. However, the government offers residents the flexibility to advance or delay the CPP payments by a few years. For instance, you can begin the CPP payment as early as age 60 or delay it until you reach 70.

Moreover, you should know that for every month the CPP payment is advanced, the payout is reduced by 0.6%. This means the CPP payment will be reduced by 36% over five years. Alternatively, the retirement benefit also increased by 0.7% for every month you delay the payment.

So, let’s see when it makes sense for you to claim the CPP at 60.

Should you claim the CPP at 60, 65, or 70?

The age at which you start the CPP depends on several factors, such as your retirement savings, income sources, and life expectancy.

So, individuals grappling with health issues or a shorter life span can consider claiming the CPP at an earlier age. In fact, several retirement planners state the ideal age to start the CPP benefit is 60 for those who don’t expect to live above the age of 69.

High-income retirees may start the CPP at an earlier date to avoid clawbacks on other retirement plans such as the Old Age Security. An early payout option may also work for Canadian seniors dealing with unemployment and is advantageous for those who did not work after the age of 55.

Basically, a reduction in the CPP payout might also be a non-issue if done correctly.

Supplement the CPP with dividend stocks

The maximum CPP payout in 2024 is less than $1,500 per month, while the average payout is even lower. Thus, it’s evident that Canadian retirees need to supplement their CPP with additional revenue streams to lead a comfortable life in retirement.

One low-cost way to create a passive and recurring income stream is by investing in quality dividend stocks such as Richards Packaging Income Fund (TSX:RPI.UN), which currently offers you a tasty yield of almost 4%.

In the last 10 years, Richards Packaging Income Fund has returned 183%. However, after adjusting for dividends, total returns are much higher at 327%. Valued at $375 million by market cap, the company designs, manufactures, and distributes packaging containers and healthcare supplies and products in North America.

Richards Packaging is the leading packaging distributor in Canada and the third largest in North America. It provides one of the most diverse product and service offerings to product marketers and healthcare players.

In 2023, Richards Packaging reduced working capital by $33 million and used the proceeds to lower balance sheet debt and improve the leverage ratio to just 0.2 times.

Richards Packaging aims to grow core sales between 2% and 5%, while adjusted earnings are forecast to grow by 7% year over year. Priced at 10 times forward earnings, the TSX dividend stock is quite cheap and trades at a discount of 28% to consensus price target estimates.

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 Aditya Raghunath has no position in any of the stocks mentioned. The Motley Fool recommends Richards Packaging Income Fund. The Motley Fool has a disclosure policy.

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