The Canada Pension Plan (CPP) is more than a monthly check for most Canadians. In fact, the CPP may be the financial foundation that retirees could struggle to live without. The CPP is a retirement benefit that provides a guaranteed monthly payout to eligible retirees. Basically, it is a taxable monthly benefit that aims to replace a portion of your income in retirement.
In 2024, the average CPP payout stood at $815, while the maximum CPP payment was higher at $1,364.60. The CPP payout depends on several factors, such as the average earnings throughout your working life, the length of these contributions, and the age at which you decide to start the pension. So, let’s see if you should collect the CPP at 60, 65, or 70.
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Should you begin CPP at age 60?
Generally, Canadian retirees begin the CPP payments at age 65. However, you can advance or delay these payments by five years, both of which offer unique advantages and drawbacks.
It’s enticing to begin collecting the CPP at 62, as you don’t have to wait to get your hands on the monthly benefit. However, for each month you advance the payment, your payout will be reduced by 7.2%. So, your CPP disbursements will decline by a substantial 36% if it is advanced by five years.
Now, if you delay the CPP to 70, your payments will increase by 42% (8.4% each month), which is quite sizeable. As you have to wait for a whole new decade, this approach requires patience and, more importantly, financial stability.
So, when should you begin collecting the CPP? Well, it depends on your average monthly income in retirement. Canadian retirees should generate enough passive income to cover basic expenses when the paycheck stops. Canadians with a steady and recurring source of passive income can consider delaying the CPP, while those with a lower payout may want to advance these payouts.
Further, the withdrawal age will depend on factors such as marital status, personal health, access to other retirement plans, and tax implications.
Supplement the CPP with quality dividend stocks
It is evident that banking solely on the CPP in retirement is not enough; you need to supplement the income with other cash flow streams. One low-cost way to do so is by investing in blue-chip stocks with an attractive yield, such as Great-West Life Co (TSX:GWO).
Great-West is an insurance giant valued at a market cap of $45 billion. It pays shareholders an annual dividend of $2.22 per share, translating to a forward yield of 4.55%. In the last 10 years, the TSX stock has returned 144% to shareholders after adjusting for dividend reinvestments.
Great-West Life continues to perform well amid challenging macro conditions due to recent accretive acquisitions and improved net flows, which have driven growth in assets over administration over the past year.
Strong growth across business segments allowed the company to end the third quarter with record base earnings of $1.1 billion, up 12% year over year. Priced at 10.2 times forward earnings, the dividend stock trades at a compelling valuation in November 2024.
