The CPP (Canada Pension Plan) is a taxable monthly retirement benefit that aims to replace a portion of your employment income in retirement. The average age to start receiving the CPP is 65. But the Canada Revenue Agency allows you to begin the payout as early as 60 or delay them until the age of 70.
The CPP payout reduces by 0.6% for every month you advance the payment. So, the CPP will be reduced by a maximum of 36% for those starting the pension at the age of 60. Alternatively, it increases by 0.8% for every month the payment is delayed. It means retirees starting the payment at the age of 70 will see a 42% spike in their retirement benefits.
The average CPP payout for a 65-year-old starting the retirement benefit is $831.92 in 2024. So, the average CPP benefit for someone starting the payment at age 70 will rise by 42% to $1,181.32 in 2024.
While the CPP offers a recurring income stream for individuals and households, it’s not enough to lead a comfortable life in retirement, given the cost of living expenses in major cities such as Toronto and Vancouver.
So, it’s essential to create multiple income streams and supplement the CPP payouts. Here’s how Canadian retirees can expand their income streams this year.
Invest in GICs
The recent interest rate hikes have made fixed-income instruments such as Guaranteed Investment Certificates (GICs) an attractive option in 2024. Here, you deposit a certain amount of money with banks or financial institutions that pay you interest on the principal.
For GICs with a lock-in period of more than 12 months, the interest can be paid monthly, annually, or at maturity. Alternatively, if the lock-in period is fewer than 12 months, the principal amount and interest are paid at maturity.
Several banks are offering an interest rate of 5% on GICs, which is higher than the current inflation rate. This asset class is ideal for retirees who have a low-risk appetite but aim to outpace inflation.
Invest in quality dividend stocks
For investors with a higher risk profile, investing in quality dividend stocks can help them create a passive-income stream for life. As dividends are not guaranteed, it’s crucial to identify stocks that have a proven business model and a history of performing well across business cycles.
Ideally, you would want to invest in companies with a growing earnings base that should translate to consistent dividend hikes, enhancing the effective yield significantly.
One such blue-chip TSX dividend stock is Enbridge (TSX:ENB), which offers you a yield of more than 7.5%. Moreover, the Canadian energy infrastructure giant has raised its payouts for 29 consecutive years, making it one of the most popular dividend stocks in North America.
In addition to a consistent dividend, which is paid out every quarter, Enbridge stock also generates returns in the form of capital gains. In the last 20 years, Enbridge stock has returned 265% to shareholders. However, after adjusting for dividends, cumulative returns are much higher at 779%.
