CPP and OAS Are Not Enough: Should You Delay Retirement to Fight Inflation?

Are you depending on the CPP and OAS pension for your retirement? Then you are up for some disappointment. 

| More on:

Canada is gradually coming out from the pandemic. The pandemic affected the economy and health of Canadians, especially the ageing population. Many lost their jobs, and some took voluntary retirement. If you are considering taking retirement and living off a government-funded retirement, you are up for disappointment. 

How much pension you can get from the CPP and OAS

The government-funded Old Age Security (OAS) pension and the self-funded Canada Pension Plan (CPP) can give you up to $1,822 per month in retirement. This is the amount you can get if you retire at age 65. But you can increase this amount by $728 by delaying your retirement to age 70. 

The above amount is the maximum, and not everyone gets it. The average monthly CPP payout is $619.75 as of January 2021. The Canadian government adjusts the above amount for inflation. But ask yourself, is $1,238/month in CPP and OAS combined enough to maintain your current standard of living? And don’t forget, this amount is taxable. 

The problem with retirement is that it is not just inflation that affects your expenses. There are rising medical bills and convenience charges you pay, as your health doesn’t allow you to take the physical strain. Rising inflation is also making old age costly. 

Should you delay your retirement? 

The big question is, should you delay your retirement? Both the CPP and the OAS incentivize you to delay your payout to age 70. Delaying the CPP and OAS will increase your payout by 42% and 36%, respectively. You can get a maximum monthly pension of $2,550 and an average of $1,721. 

Delay your retirement if you have a job after the pandemic, if you don’t have sufficient savings, and if you have any ongoing loan or mortgage. Use these five years to pay off your loan and start a personal retirement fund. 

A retirement fund that beats inflation 

You need to plan your retirement fund strategically. The repayment of debt will take away a major portion of your monthly expenses. Look at your current monthly expenses after loans and reduce them by $2,000 (this is about the amount you can get from government retirement plans). The amount left after deduction is what you’ll seek from your retirement fund. Also, you need to ensure your retirement fund is not adding to your tax burden. 

Hence, create a personal retirement fund in the Tax-Free Savings Account (TFSA). If you have already been investing in the TFSA, evaluate your portfolio for stocks whose growth has stagnated or bonds that are giving less than 3% returns. These stocks will not help you beat inflation or address your growing healthcare expenses. 

Invest that money in inflation-beating dividend stocks like Enbridge (TSX:ENB)(NYSE:ENB) or BCE. Enbridge is offering a 7% dividend yield. If you invest $20,000 in Enbridge now, you can lock in a monthly dividend income of $117. Your principal amount will remain invested and exposed to stock price movement. 

Enbridge has successfully increased its dividend at an average annual rate of 10% in the last 26 years. The company’s new pipeline construction could slow in the coming years due to environmental reasons. Even if I take a conservative estimate of a 5% dividend growth, your monthly tax-free dividend pension will grow to $181. 

To a stress-free retirement 

I don’t suggest frequent portfolio reallocation. But it is necessary to keep a tab on your portfolio performance when there is a change in your financial needs. Sometimes, you need to book a profit to have a stress-free retirement. 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Puja Tayal has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Enbridge.

More on Dividend Stocks

dividends can compound over time
Dividend Stocks

Want a 7% Yield? The 3 TSX Stocks to Buy Today

These TSX stocks are offering high yields of over 7%, making them attractive for investors seeking steady passive income.

Read more »

how to save money
Dividend Stocks

The Smartest Dividend Stocks to Buy With $200 Right Now

These smartest dividend stocks can consistently pay and increase their dividends in the coming years, irrespective of the macro uncertainty.

Read more »

Electricity transmission towers with orange glowing wires against night sky
Dividend Stocks

3 Utility Stocks That Are Smart Buys for Canadians in November

These utility stocks benefit from regulated businesses and generate predictable cash flows that support higher dividend payouts.

Read more »

Start line on the highway
Dividend Stocks

Invest $10,000 in This Dividend Stock for $600 in Passive Income

Do you want to generate passive income? Forget the rental unit! This option will save you the mortgage yet still…

Read more »

Senior uses a laptop computer
Dividend Stocks

1 Reliable Dividend Stock for the Ultimate Retirement Income Stream

TD Bank (TSX:TD) shares are way too cheap with way too swollen a yield for retirees to pass up right…

Read more »

A worker drinks out of a mug in an office.
Dividend Stocks

Is Brookfield Infrastructure Partners a Buy for its 4.75% Yield?

Brookfield Infrastructure Partners (BIP) has a 4.75% dividend yield. Is it worth it?

Read more »

TFSA (Tax-Free Savings Account) on wooden blocks and Canadian one hundred dollar bills.
Dividend Stocks

Where to Invest Your $7,000 TFSA Contribution

The TFSA is attractive for investors who want to generate tax-free passive income.

Read more »

The TFSA is a powerful savings vehicle for Canadians who are saving for retirement.
Dividend Stocks

TFSA Investors: 3 Dividend Stocks Worth Holding Forever

These TSX stocks have the potential to grow their dividends over the next decade, making them top investments for TFSA…

Read more »