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Canada Pension Plan (CPP) users reach a fork in the road at age 60. Eligible pensioners can start drawing CPP benefits as early as 60, although full retirement benefits are available at 65. According to a published report by The Globe and Mail a year ago, most Canadians under the pension plan typically start payments at the earliest possible age.
Financial consequence
The consequence of the early take-up is a loss in retirement income because the benefit amount decreases by 0.6% per month before age 65 (7.2% per year). Think about it. The maximum “permanent” reduction at 60 is 36% for the entire five years.
For illustration purposes, let us look at the standard retirement pension at age 65. The maximum monthly amount is $1,364.60 (2025), although most CPP users receive only the average benefit of $815 (2024). Hence, at 60, you will receive only $521.60 monthly or $6,259.20 annually instead of $9,780.
Delaying payments until 70 means a 0.7% per month increase (8.4% per year) for a total 42% boost to $1,157.30 ($13,887.60 per year). So, how else can you maximize CPP benefits other than waiting five or 10 years more?
OAS at 65
Starting CPP payments at 65 makes sense because the Old Age Security (OAS) monthly benefit of $727.67 kicks in when you turn 65. The CPP and Old Age Security (OAS) combination translates to $1,542.67 monthly or $18,512.04 yearly. Still, retirement planners say both pensions are partial replacements to pre-retirement income.
The suggestion is to utilize retirement accounts like the Registered Retirement Savings Plan (RRSP) and Tax-Free Savings Account (TFSA) to augment the CPP and OAS benefits. Generating investment income is the way to fill the income gap.
Strong buys
Headwater Exploration (TSX:HWX) is a cheap source of passive income. The $1.7 billion oil & gas exploration and development company produces petroleum and natural gas. At $7.09 per share, the energy stock pays a hefty 6.21% dividend. A $10,000 investment transforms into $155.25 in quarterly passive income.
Based on market analysts’ strong buy rating and a 12-month price target of $9, the upside potential is 21.22%. The bullish sentiment stems from the impressive financial results after three quarters in 2024. In the nine months ending September 30, sales, cash flows from operating activities, and net income rose 24%, 13%, and 26% year over year to $436.2 million, $240.7 million, and $139.1 million.
Because of the positive exploration results and declining maintenance capital requirements, the board approved a 10% dividend hike beginning in 2025.
Peyto Exploration & Development (TSX:PEY) explores and produces unconventional natural gas. Besides the hefty 8.66% dividend offer, this mid-cap stock pays monthly dividends. The current share price is $16.70. A $10,020 position (600 shares) will produce $72.31 monthly.
The $3.28 billion energy company explores and produces unconventional natural gas. Peyto is active in hedging future production (financial and physical fixed-price contracts) to protect future revenue from commodity price and foreign exchange volatility. According to management, the disciplined hedging program has secured approximately $790 million in revenue for 2025.
Some insights
Some schools of thought say if you don’t expect to live past 75, you’re better off starting payments at 60. However, it’s ideal to claim the CPP benefits at 65 if life expectancy is longer or past 75.
