CPP Users: 3 Ways To Make Sure Your Retirement Backpack Is Always Full
If you think of retirement as a long and enjoyable journey, you need to make sure that your backpack doesn’t run out of supplies. Canada Pension Plan (CPP) users look forward to the day when they finally live their dreams. Excitement builds as we approach retirement.
The CPP is guaranteed income for life, and most Canadians who retire will rely on the pension for their livelihood in the years that are gone. You can start payments at age 60, then wait for your retirement income to increase when Old Age Security (OAS) begins at age 65.
During retirement years, your CPP (plus OAS) builds up the reserve. However, the boarding house can only fill 25% to 33% of your backpack. The trip is full of surprises and the harsh reality that you may well run out of resources to cover unforeseen expenses along the way.
Preparation is the key to making retirement life enjoyable and hassle free. Here are three ways to make sure your backpack is full every step of the way.
Delay your CPP
The CPP sets the normal retirement age at 65 and the average monthly pension amount is $ 619.75 (as of January 2021). Users with urgent financial needs or health problems usually take the pension when it becomes available at age 60. However, the annual amount decreases by 36% permanently with the early option.
If you are in excellent health, you can take advantage of the late option incentive. When you start payments at age 70, the annual amount increases by 42%, from $ 7,437 to $ 10,560.64. You can do the same with the OAS. Voluntary deferral to 70 will increase annual benefits by 36%.
Create a debt repayment plan
CPP users about to retire should create a debt repayment plan rather than getting new loans. If necessary, be more structured and go for debt consolidation. A fixed interest rate and a fixed payment amount over a period of time will allow for better cash flow or budget planning. The goal is to free up more money whenever possible.
Save and invest
Besides controlling spending, your free money should always be spent on savings. When you have more money in the bank, let the cash work for you rather than leaving it idle. Investing in companies with low risk business models offers capital protection and pays lasting dividends. Fortis (TSX: FTS) (NYSE: FTS) in the utilities sector has similar characteristics to bonds.
The $ 25.92 billion utility company operates on both regulated (electricity and gas) and unregulated (energy infrastructure) assets. What appeals most is that almost 99% of income comes from regulated assets. Therefore, Fortis is practically a cash cow and a dividend machine.
At $ 55.19 a share, the recession-resistant stock pays a decent dividend of 3.66%. Fortis’ 47 consecutive years of dividend increases are another compelling reason to make this stock a core portfolio. By 2023 and 2025, its rate base will increase to $ 36.4 billion and $ 40.3 billion, respectively. It’s no wonder that management envisions 6% annual dividend growth through 2025.
Current retirees who have not prepared well complain that they have not saved enough for retirement. Today, CPP users have the choice of bringing a mini or a full-size backpack on their retirement trip. Your best bet is to save money on a regular basis and put it in assets that provide a lifetime provision.
Speaking of three ways CPP users can fill their backpacks for the retirement trip …
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Silly contributor Christopher Liew has no position in any of the listed securities. The Motley Fool recommends FORTIS INC.