Home » Investing » Bank Stocks » CPP Pension Users: How to Increase Your CPP Payments by 42%
The CPP payout can be increased by delaying these payments. You can also supplement the CPP by creating a steady stream of income and holding dividend stocks.
Aditya Raghunath joined the Motley Fool Canada team in 2019 and has close to seven years of experience in covering publicly-listed companies. With a post-graduate degree in finance, Aditya aims to educate and engage Canadians by writing extensively about growth, dividend, and value stocks. If you are considering investing in the stock market, he recommends reading The Intelligent Investor by Benjamin Graham before taking the plunge.
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The Canada Pension Plan (CPP) is a vital component of your retirement income. In 2020, the maximum payments for Canadian seniors starting the CPP at the age of 65 was just over $14,000 on an annual basis.
Your CPP payouts in retirement depend on various factors including the amount you have contributed to the pension plan as well as the duration of these contributions. However, there is a way to increase these payouts by as much as 42% if you delay taking your CPP until the age of 70.
For every month you delay the CPP, you will receive an additional 0.7%. So, if you delay the pension plan by three years, your CPP will increase by 25.2%.
It is not advisable to only depend on your CPP payments in retirement, as it is not enough to lead a comfortable life in retirement. This means you need to ensure to develop multiple income streams that will help you delay your CPP payouts.
One way to create an additional tax-free income stream is by holding blue-chip dividend-paying stocks in your TFSA (Tax-Free Savings Account).
Royal Bank of Canada stock is a top TFSA pick that can supplement your TFSA
Royal Bank of Canada (TSX:RY)(NYSE:RY) is the second-largest company on the TSX in terms of market cap. It has been a solid wealth creator for investors in the last two decades.
For example, a $10,000 investment in RY stock at the start of 2000 would have ballooned to $173,387 today after accounting for dividend reinvestments. Comparatively, a similar investment in the S&P 500 would have been worth just $36,274 today.
RY stock is trading at $105, which is just 4.5% below its 52-week high. Its sports a healthy forward yield of 4.12%, which means a $50,000 investment in the stock will help you derive over $2,000 in annual dividend payouts.
The company released its fiscal fourth quarter of 2020 results and reported a year-over-year earnings decline of 11%, while return on equity fell 16.8%.
One of the key revenue and earnings drivers for RY in Q4 was its capital markets division. Net income in capital markets rose 44% due to the corporate and investment banking segments as well as lower compensation. Total net income was up 1.4% on a sequential basis.
Royal Bank of Canada has been a top investment for shareholders. Despite its huge size, the stock has created value for shareholders by dividend growth as well as by capital appreciation.
In the last 10 years, RY stock has generated returns at an annual rate of 11.5%. While historical returns don’t matter much, there is no reason why Royal Bank of Canada will not be able to sustain this growth rate or even deliver higher returns.
The Foolish takeaway
RY’s yield of 4.12% is enough to start a predictable stream of passive income. It has recently reclaimed its start-of-the-year valuation and continues to remain attractive.
Royal Bank of Canada stock is trading at a forward price-to-earnings multiple of 11, and analysts expect its EPS to grow by 9.4% in 2021 and 8.8% in 2022. We can see that the stock is still cheap, especially after accounting for its dividend yield.
RY stock is just an example of a company that has helped investors grow long-term wealth. You can instead identify similar blue-chip companies on the TSX and create a portfolio of dividend-paying companies for your TFSA.
On the other hand, if you postpone receiving CPP until after age 65, your payments will increase by 0.7% each month (8.4% per year), up to a maximum increase of 42% at age 70. The maximum monthly amount you can receive is reached when you turn 70.
To qualify for the maximum, you must not only contribute to CPP for 39 years but you must also contribute 'enough' in each of those years. CPP uses something called the Yearly Maximum Pensionable Earnings (YMPE) to determine whether you contributed enough.
Recently, the government of Canada announced an CPP Payment Increase 2024, and the CPP Increase Amount 2024 will soon be credited. The Canadian Pension Plan (CPP) will soon undergo adjustments that will affect anyone who earn more over a specific threshold.
Canada Pension Plan (CPP) rate increases are calculated once a year using the Consumer price index (CPI) All-Items Index. They come into effect each January. These increases are legislated under the Canada Pension Plan act so that benefits keep up with the cost of living.
This additional range of earnings covered by the CPP will start at the original earnings limit (projected to be $71,200 in 2025), and go to the new earnings limit which will be 14% higher in 2025 and after (projected to be $81,100 in 2025).
If you start after age 65, payments will increase by 0.7% each month (or by 8.4% per year), up to a maximum increase of 42% if you start at age 70 (or after).
First things first, just because $831 is the average amount for a retiree who draws CPP for the first time at age 65 doesn't mean that that's precisely the amount you'll be getting. You can get up to $1,364 per month in CPP at age 65, but getting that amount depends on a few things.
Under the Canada Pension Plan, a Survivor's pension can be paid to the person who, at the time of death, was the legal spouse or common-law partner of the deceased contributor. Benefits can also be paid to the surviving children of the contributor.
You can find out an estimate of your CPP benefits by looking at your Statement of Contribution online at your My Service Canada Account, or request a paper copy by calling Service Canada. CPP payments are indexed to inflation, with the latest increase going up by 4.8% in 2024.
According to the program, retired seniors will receive an increase in payment of $1,200 per month in 2024 when the government of Canada offers Seniors Benefit in Canada. As per CRA, it will give $1,200 OAS Increase 2024 to every seniors who meets $1,200/ Month Retired Seniors Benefit 2024 Eligibility.
As a non-resident of Canada, you may be entitled to apply for Canada Pension Plan (CPP) payments and Old Age Security Pension (OAS) payments. Canada also has agreements with a number of other countries that offer comparable pension programs.
Each year you contribute to the CPP will result in an additional post-retirement benefit and increase your retirement income. We will automatically pay you this benefit the following year. You'll receive it for the rest of your life.
A OAS Increase 2024 is required for Canadians who want to receive the benefit after retirement. Employees must retire at the normal age of 65; retiring earlier or later may affect their eligibility for guaranteed benefits.
It is formally known as the year's maximum pensionable earnings, or YMPE. The first earnings ceiling, or YMPE, will be $68,500 in 2024. In 2024, the second earnings ceiling, known as the year's additional maximum pensionable earnings, or YAMPE, will be introduced.
Starting in 2024, a new, secondary CPP contribution (CPP2) will apply for workers who earn higher wages. This additional contribution, coupled with the existing CPP and first additional CPP contribution, is a significant step towards securing a brighter retirement for Canadians.
There are a few reasons for this, with the main one being that it's not easy to maximize your contributions during your working years. Another factor is that many Canadians apply for the CPP prior to age 65, resulting in a reduced monthly benefit.
To do this, you would typically need to have worked for many decades and paid the maximum CPP contribution each year. As with OAS, CPP payments increase with every year you delay drawing it after 65 (CPP increases by 8.4% for every deferred year, to a maximum of 42% extra at age 70).
If you begin your CPP/QPP payments prior to age 65, you'll incur a 0.6% reduction for each month you collect before your 65th birthday. This reduction works out to be 7.2% per year. If you begin collecting your pension at age 60, your reduction will be 36%.
Your employment history is not a factor in determining eligibility. You can receive the Old Age Security (OAS) pension even if you have never worked or are still working. If you are living in Canada, you must: be 65 years old or older.
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