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The Canada Pension Plan (CPP) is a popular retirement benefit in Canada. This payout initially focused on replacing around 25% of an individual’s pre-retirement income. However, CPP enhancements began in 2019, allowing Canadian residents to increase contributions towards this fund each year, which in turn increases retirement payouts.
The CPP enhancement will be phased in by 2025, post which it will replace 33% or one-third of an individual’s annual income. Moreover, for Canadians making enhanced contributions for at least 40 years, the pension amount will increase by 50%.
The standard retirement age a Canadian resident can begin CPP payments is 65. In 2023, the average CPP payment for a resident starting the pension at 65 is $811.2, while the maximum amount stands at $1,306.57. So, it’s not advisable to just bank on the Canada Pension Plan in retirement if you want to lead a comfortable life in retirement.
Delay the CPP and increase your payout in retirement
One way to increase the CPP payment is by delaying these payouts. For instance, the CPP benefit will increase by 0.7% for every month this payment is delayed. So, if the CPP payment is delayed by five years, your payouts will increase by a whopping 42%.
Alternatively, if you want to start these payments earlier, the payout will decrease by 0.6% each month. In this case, the CPP benefit will fall by 36% if you start the payments at the age of 60.
You can easily delay the CPP benefits if you have enough savings in retirement that generate cash flows to meet your expenses. To ensure you are in excellent financial health, it makes sense to begin your investment journey as soon as possible and benefit from the power of compounding.
Another way to boost your CPP payout is by supplementing this income and investing in blue-chip dividend stocks. Quality businesses that enjoy wide economic moats and generate predictable cash flows should be on top of your shopping list right now.
Delay CPP payments and invest in blue-chip dividend stocks
One of the best TSX stocks to buy right now is Brookfield Asset Management (TSX:BAM), whose dividend currently yields close to 4%. The alternative asset manager raised close to US$93 billion of capital in 2022 and is on track to launch three flagship funds this year.
Brookfield Asset Management ended Q4 2022 with distributable earnings of US$569 million, or US$0.35 per share. In 2022, earnings stood at US$2.1 billion, valuing the stock at just eight times trailing earnings.
Analysts tracking the company expect it to increase revenue by 24.6% to US$4.7 billion in 2023 and 18.6% to US$5.6 billion in 2024. Its adjusted earnings are forecast to increase from US$1.28 per share in 2022 to US$1.64 per share in 2024.
In its shareholder letter, BAM emphasized it aims to increase dividends between 15% and 20% annually, which is in line with the expected growth in fee-related earnings. It already generates US$4 billion of annual fees and US$2 billion of distributable earnings, making it one of the largest asset managers globally.
In the last 10 years, the company’s revenue has grown at an annual rate of 24%, which is exceptional for a blue-chip giant.
