Did you know that under certain circumstances, you can receive Canada Pension Plan (CPP) benefits early or get higher-than-normal amounts? The circumstances that allow these outcomes are not common, but they occur from time to time. In this article, I will explore how you can get early or increased CPP benefits.
Scenario #1: Disability
If you become disabled, you may be eligible to take CPP disability benefits. You have to be under 65 and have a disability that will keep you out of work for a long time or result in death to claim this benefit.
The Federal Government maintains a list of disabilities that are likely to qualify a person for CPP disability benefits. You don’t necessarily need to have a disability on the list to receive benefits, and you aren’t guaranteed benefits if you have a disability on the list. However, you can look up the list of disabilities to get a sense of your chances of receiving CPP disability benefits.
Suffice it to say, if your disability is a terminal illness, then you will probably get approved.
Scenario #2: Survivor benefits
One scenario where you can get increased CPP benefits is your spouse passing away. Here, you get what’s known as “survivor benefits.” The amount is 60% of your spouse’s CPP payment, reduced by your CPP regular benefits.
You cannot get the full amount of your spouse’s payment and your regular benefits payment. However, you can get more benefits than you were getting from regular benefits alone. For example, if your CPP regular benefits are less than the maximum possible CPP pension, survivor benefits can top you up to that level.
Worried that CPP isn’t enough? Try investing
If you’re receiving CPP and finding your amount inadequate, you don’t necessarily need to apply for special benefits. Instead, you can invest in a Registered Retirement Savings Plan (RRSP) and start building a pension of your own.
The key to RRSP investing is knowing what to buy.
Among assets that retirees can invest in, index exchange-traded funds (ETFs) are often considered among the best. With an extreme amount of diversification built-in, they reduce the risk inherent in investments, and require less research than individual stock positions do.
Consider iShares S&P/TSX 60 Index Fund (TSX: XIU) for example. It’s an ETF that tracks the TSX 60 — the 60 largest Canadian stocks by market cap. 60 stocks is far more than you need to achieve 99% of the benefit of diversification. Additionally, XIU is very liquid, being one of the most widely traded ETFs on the entire TSX composite index. Finally, XIU has a relatively low 0.16% management expense ratio (i.e., fees and expenses), which means you won’t have to suffer seeing your returns eaten away at by fees. Over the years, XIU has about equalled the total returns delivered by the TSX index as a whole. It definitely comes highly recommended.
Index funds are usually considered ideal for most investors. However, individual stocks with solid financial characteristics can make good buys too. For example, many pensioners hold outsized percentages of their portfolios in Fortis stock, because it’s a well-run utility (utilities are known for being stable and reliable). Their bet has paid off year in and year out.
Going all-in on one stock goes against modern portfolio theory, but if you know how to analyze a business, sometimes large single bets can be justified.
