All working Canadians aged 18 to 65 who earn over $3,500 annually must contribute to the Canada Pension Plan (CPP) retirement pension. Contributions past 65 are voluntary for users working until 70. The CPP pegs the standard retirement age at 65, but you can start payments at 60.
There’s a delay option, too, although very few choose to wait until 70 despite a financial incentive. The CPP is indexed for inflation and lifetime income but only replaces part of your pre-retirement income.
Assuming you’re 60 or 65 and retiring in 2024, know the benefits and find out if you can live comfortably in the sunset years.
Standard age
The maximum CPP payment at age 65 is $1,364.60 monthly, but most pensioners take home $831.92 (as of January 2024) on average. So, instead of $16,375.20, you can expect to receive $9,983.04 per year. Since the total amount is only 25% of pre-retirement income, there’s an income gap to fill.
Investing in dividend stocks like Sienna Senior Living (TSX:SIA) is one way to lessen the gap. The $1.38 billion provider of retirement residences and long-term-care (LTC) services is popular with income-focused investors because it pays monthly dividends.
At $16.69 per share, the dividend yield is 5.57%. For every 1,300 shares ($21,697) you buy, you generate $100.71 monthly. The passive income is tax-free in a Tax-Free Savings Account (TFSA). SIA outperforms in 2024 and is 52.66% year to date because of accelerated growth momentum in a stabilizing macro-environment.
In the first half of 2024, net operating income (NOI) climbed 31.3% year over year to $109.5 million. The outlook for Sienna Senior Living is bright due to strong long-term fundamentals in senior living. Besides the ever-growing needs of Canadian seniors, there’s a limited new supply of senior living accommodations.
Take up at 60
Many Canadians prefer to collect CPP benefits as they’re eligible. However, the consequence is a 0.6% decrease each month (7.2% per year) or a 36% permanent reduction. Still, this option makes financial sense if you have limited savings and urgent financial needs at age 60.
It’s also a good decision for those with health concerns and shorter life expectancy. The downside is a larger income gap; you could receive $6,389.15 per year with the early take-up instead of $9,983.04.
Chemtrade Logistics (TSX:CHE.UN) is another investment option to augment CPP benefits. Also, at $11.17 per share, current investors delight in the 38.36% year-to-date gain on top of the lucrative 5.99% dividend yield. A $30,159 investment (2,700 shares) today will produce a cash inflow of $150.54 monthly.
The $1.3 billion company offers industrial chemicals and services and derives revenues from two core segments: Sulphur and Water Chemicals and Electrochemicals. According to its chief financial officer, Rohit Bhardwaj, Chemtrade has strong financial footing and will continue to generate robust cash flow more than the monthly distribution. The payout ratio is only 57.27%
Careful evaluation
Deciding on when to start CPP payments (60 or 65?) requires careful evaluation because of the disparity in benefits. Either way, you can improve your financial situation in retirement by creating other income streams.
