Do you want to boost your retirement income by increasing your Canada Pension Plan (CPP) benefits?
If you are not yet retired, it’s possible to do so.
There are two ways you can increase your CPP benefits and boost your retirement income. In this article, I will explore both methods. I will also cover one method for supplementing your CPP benefits for those who are already retired or don’t want to delay retirement.
Key #1: Work more hours
One way to boost your CPP is to simply work more hours in the lead up to your retirement. Your CPP benefits are based on your CPP contributions, which, in turn, are based on your income. If you work more hours (let’s say by taking overtime), then you’ll be making more CPP contributions, which will ultimately lead to greater benefits.
There is one caveat here, which is that there is a maximum earnings level on which CPP premiums are taken out. Currently, the amount is $66,900; by 2025, it will be over $81,800. If you’re already earning over $100,000, you can’t boost your CPP by working more hours. Fortunately, there is still one method you can use to boost your CPP.
Key #2: Wait longer to retire
No matter how much you earn, you can boost your CPP by waiting longer to retire and take your CPP pension. Apart from insurable earnings, your CPP benefits are determined by the age at which you retire. You get a 0.2% increase in benefits for each year you delay retirement from 60 to 65. You get an additional 0.3% increase in benefits for each year from delay retirement from 65 to 70. That might not sound like much, but all the years of delaying retirement can add up. Somebody delaying retirement until 65 can earn up to $1,306 per month in CPP; the average Canadian gets only $811.
Want to skip all that? Try this
If working more hours or waiting longer to retire doesn’t sound like something you want to do, then you can’t boost your CPP.
However, you can supplement your CPP benefits, by investing in a Registered Retirement Savings Plan (RRSP) or Tax-Free Savings Account (TFSA). RRSPs and TFSAs are tax-deferred/tax-sheltered accounts that let you invest in stocks, bonds, and index funds. These accounts are easy to set up and they save you a lot of money on taxes.
What kinds of assets should you hold in your RRSP or TFSA? Index funds are always a good choice, as they diversify away your risk.
If you’re considering individual stocks, you could look into large banks like Toronto-Dominion Bank (TSX:TD). Canada’s big banks are very strictly regulated, which ensures that they follow proper risk-management practices and don’t do anything silly. TD Bank, in particular, has excellent risk-management practices. It has a 15.5% CET1 ratio, which means that its low-risk assets (cash and equity) are 15.5% of all risk-weighted assets. So, it’s keeping a lot of liquidity on its books.
Nevertheless, it still managed positive growth in revenue in its most recent quarter and closed its buyout of the U.S. investment bank Cowen this year. Despite its conservatism, TD Bank is not eschewing growth. Over the decades, TD Bank has vastly outperformed the average Canadian bank stock with its combination of prudence and aggressiveness. Overall, it’s an appealing stock worth looking into.
