There are plenty of options when choosing the age to begin Canada Pension Plan (CPP) payouts. For example, you can start the CPP at age 60 or wait a few years and earn larger cheques by delaying the payment.
Generally, the age for retirees to begin their CPP payouts is 65. So, payments are reduced by 0.6% each month for Canadians starting the CPP before age 65, which means the CPP amount will be reduced by 36% if you start it at 60. Alternatively, these payments will increase by 42% (0.7% each month) if started at age 70.
Determining when to begin the CPP may be the most important decision for retirees as it has a lifetime impact on monthly payments. But what’s the best age to start taking these benefits? Well, it depends on several factors, such as net worth and cash flow.
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Do you want to retire early?
Most of us work to save for retirement to lead comfortable lives, and retiring early is a dream that is difficult to achieve. Additionally, a few more working years can help you increase your retirement savings significantly.
So, retirees need to ensure they have enough savings for those looking to claim the CPP at an earlier age. Alternatively, you may risk depleting the retirement fund quickly if you don’t have enough savings.
Do you want to maximize your savings in retirement?
An effective way to boost your retirement income is to delay the CPP by a few years. In 2024, the average CPP payout for a 65-year-old starting the payment is $816.52. This means the CPP payment will rise by 42% to $1,159 for a 70-year-old Canadian resident.
Delaying the CPP can maximize monthly payments for Canadians who don’t have enough savings to last through retirement. Moreover, delaying the retirement payout is also ideal for those who continue to work part-time and earn a regular source of income.
Canadians should note that relying just on the CPP is not enough and other sources of income should supplement the retirement payout. One low-cost way to begin a passive-income stream is by investing in a portfolio of blue-chip dividend stocks. Let’s see how.
How much should you invest to earn $3,000 in monthly dividends?
The rise in the cost of living in Toronto and other major Canadian cities would mean that households would require around $3,000 to lead a comfortable life. Given an annual dividend income of $36,000 and an average dividend yield of 5%, Canadian households would need to invest $720,000 in dividend stocks, which might seem overwhelming for future retirees.
However, you need to take advantage of the power of compounding and begin your investment journey at an early age. For example, an investment of $5,000 in Enbridge (TSX:ENB) stock 30 years back would have ballooned to $270,000 today after adjusting for dividends. In this period, the Canadian energy giant has increased its dividends by 10% annually on average, enhancing the yield at cost over time.
Today, Enbridge still offers a forward yield of 6.9% and remains a top investment option for income-seeking retirees. However, to diversify your holdings and lower investment risk further, you need to identify other blue-chip stocks with a growing payout.
