If you’re nearing the age of 60, it might be a good idea for you to think about when you’re going to take Canada Pension Plan (CPP) benefits. You’re able to begin drawing them starting at age 60, but you get more benefits per year if you delay taking them. Every year you don’t take CPP, from age 60 onward, adds a few percent to your ultimate monthly benefit. The maximum benefit for someone starting CPP at age 65 ($1,364) is far higher than the max amount for someone starting at 60 ($873). That we know for sure.
As for “average” amounts, that’s surprisingly complicated. There is a simple math formula you can use to calculate the absolute maximum amount of CPP you can get at a given age. Averages, on the other hand, require that you access population data directly. So far, Statscan has not published any data on the average amount of CPP Canadians draw at age 60, but it is possible to come up with a rough estimate based on some indirect indicators.
In past articles, I estimated the average CPP at age 60 using Canadian government data and the CPP formula. The Federal government recently updated its website with new CPP amounts for 2024, so the numbers are different now. Accordingly, I will discuss the new average CPP amount for a person taking benefits at age 60, using the updated government data.
Around $532
According to the Federal Government, the average Canadian who takes CPP at age 65 in 2024 will get $832 per month. CPP payments are 7.2% lower for each year prior to your 65th birthday you take benefits. If we assume that the average Canadian taking benefits at 60 is otherwise identical to the average Canadian taking benefits at 65, then their monthly benefits are around $532 per month – that is, $832 per month minus 36% of that amount ($300).
How to boost your CPP
If $532 per month doesn’t sound like enough CPP to you, there are ways you can boost your amount. The easiest of these is to delay taking benefits. You can get up to $1,364 per month if you wait until 65 to take CPP, and earn the maximum pensionable amount your entire adult life. You can also boost your after-tax CPP amount by claiming more tax deductions – you can make RRSP contributions to get more of them. Apart from those two options, there are few ways to boost your benefits.
An alternative to waiting longer to take CPP
If waiting years to boost your CPP payouts sounds like a drag to you, you have options. Boosting your CPP isn’t easy, but if you have some savings lying around, you can always invest and create your own CPP-like income stream that way.
Dividend stocks held within an RRSP or TFSA are ideal here. They create an automatic cash income stream that comes in whether or not you are working.
Consider Royal Bank of Canada (TSX:RY), for example. It’s a bank stock with a 4.6% yield. That means that if you invest $100,000 into the stock, you’ll get $4,600 back in dividend income in a year. Over time, the dividend may rise, giving you an even higher yield!
If you hold a diversified portfolio of stocks like RY in a tax-free savings account, you can collect a large amount of dividends and use them as an alternative to taking CPP. In 2024, the absolute maximum amount of TFSA contribution room is $95,000. If you invest all of that into RY stock, you should get $4,370 in annual dividend income. You shouldn’t invest your TFSA in just one stock – a portfolio should have at least 25 stocks in it. But this example helps to illustrate what’s possible with dividend stocks. They can spare you the fate of having to rely on CPP, especially if you hold them in a TFSA.
