The Canada Revenue Agency (CRA) has had its work cut out for it in 2020. It was tasked with processing and delivering some of the most radical and ambitious social-spending programs in history during the COVID-19 pandemic. Moreover, it sustained a data breach in the summer that forced it to suspend its online services in the thick of this crisis. Today, I want to talk about an announcement regarding the Canada Pension Plan (CPP).
CRA makes changes to the Canada Pension Plan
In the beginning of November, the CRA announced that the maximum pensionable earnings under the CPP for 2021 would be $61,600 — up from $58,700 in 2020. Therefore, contributors who earn more than $61,600 in 2021 are not required or permitted to make additional CPP contributions. Additionally, the basic exemption amount for the next year will stay at $3,500.
More information from the CRA revealed that the employee and employer CPP contribution rates for 2021 will be 5.45% — up from 5.25% in 2020. Self-employed contribution rates will be 10.9%. That is up from 10.5% this year. These are all part of the CPP enhancement, which started in 2019. This was part of a Liberal campaign promise that is being fulfilled.
Finally, the maximum employer and employee contribution to CPP for 2021 will be $3,166.45 each. The maximum contribution for self-employed Canadians will be $6,332.90. In 2020, the maximums were $2,898.00 and $5,796.00. This is not an inconsequential increase from the CRA.
This effort from the federal government is encouraging. However, Canadian retirees will require additional income from the CPP in the years ahead. That is why they should look to stash income-generating equities that can markedly bolster their post-retirement livelihood.
Retirees: Here is how you can earn additional income outside the CPP
Back in March, I’d discussed whether Canadians could retire comfortably on OAS and CPP payments alone. I’d concluded that they could, but their quality of life would suffer in living what would likely be a very frugal lifestyle. Instead, retirees should bolster their income with quality dividend stocks.
For this task, I’d stash my dividend stocks in a Tax-Free Savings Account (TFSA). This way, the CRA has no claim to your earnings or your investment income. It is all tax free.
One super stock I’d consider for a retiree TFSA portfolio is Fortis (TSX:FTS)(NYSE:FTS). This St. John’s-based utility has proven to be an elite dividend payer on the TSX. Shares of Fortis have climbed 4% in 2020 as of close on November 12. The stock is up 7.9% from the prior year. This top dividend stock last had a solid price-to-earnings ratio of 20 and a price-to-book value of 1.4.
In September, Fortis delivered its 47th consecutive year of dividend increases. It boosted its quarterly payout to $0.505 per share, which represents a 3.7% yield. Solid earnings in Q3 2020 allowed it to boost its five-year capital plan. This plan aims to improve its rate base and support annual dividend growth of 6% through 2024.
