Planning retirement finances in Canada includes starting the Canada Pension Plan (CPP) payments. The CPP pegs the standard retirement age at 65, but the early or late take-up has financial repercussions.
The Globe and Mail conducted an informal survey early this year regarding CPP users’ age to start payments. Around 34% of the respondents picked 60, while 65 was the most popular age for 19%. Respondents know about lower payments in the early take-up or a 0.6% monthly reduction (7.2% annually) before age 65.
Our focus in this article is the average CPP benefit at 60 and 65 in 2024, not beyond. CPP framers believe 65 is the ideal option because even if you don’t qualify to receive the maximum, the average CPP amount is higher than at 60.
Standard age
Assume you’re 65 and claiming the CPP today. The maximum amount per month is $1,364.60 or $16,375.20 per year. However, only those who have contributed 39 years to the plan can receive the maximum benefit. If not, expect to receive the $831.92 average per month (as of January 2024) or $9,983.84 per year.
Early take-up
Assume you’re 60 and firm with your decision today to start CPP payments. Expect to receive $532.43 monthly ($6,389.15 per year) due to the 36% permanent decrease in your retirement benefit. Survey respondents have valid reasons for the early take-up.
Valid reasons
Most who take their CPP at 60 need financial coverage of living expenses. The pension is an immediate solution, and the income stream is for life. Shortened life expectancy due to health problems is another reason for the early take-up decision. Others go to the extent of the CPP’s inability to sustain pension payments in the future.
The CPP fund is growing and based on estimates, it will exceed $1 trillion by 2031 and top $1.5 trillion by 2036. The Canada Pension Plan Investment Board (CPPIB) Act states that federal and provincial governments can’t interfere in the management of the funds or influence the decision of the CPPIB as the fund manager.
Investing to boost the pension
Some CPP users take their benefits early and use them for day-to-day expenses. They invest their savings in income-producing assets like stocks. The recurring passive income from dividend stocks could boost the pension and come out more in the long run.
Canadian Imperial Bank of Commerce (TSX:CM) and TELUS (TSX:T) can be your anchor stocks. Both are generous dividend-payers and can sustain quarterly dividends regardless of the economic environment.
CIBC, Canada’s fifth-largest bank, trades at $67.24 per share and pays a hefty 5.39% dividend. The $46.3 billion bank has a 156-year dividend track record. In the first quarter (Q1) of fiscal 2024, net income rose 299.1% to $1.73 billion versus Q1 fiscal 2023. The provision for credit losses (PCL) increased 98.3% year over year to $585 million.
TELUS, Canada’s second-largest telco, is a Dividend Aristocrat owing to 19 consecutive years of dividend increases. At $22.59 per share, the 5G stock pays a lucrative 6.68% dividend. This $33.3 billion telco giant has a dividend-growth program in place. At the close of Q1 2024, TELUS announced a 7% dividend hike.
Decision is final
Prospective retirees should know that whether you decide to start payments at 60, 65, or later until 70, the decision is final. Thus, assess your financial situation and others before making the decision.
