If you’re retired, there are several ways to boost your Canada Pension Plan (CPP) pension. First, if you aren’t taking CPP yet, you can delay taking it. Second, if you took CPP for the first time less than a year ago, you can reverse your decision, stop taking benefits, and begin accumulating future benefits once more. Third and finally, if you’re under 71 years old, you can make Registered Retirement Savings Plan (RRSP) contributions and increase your after-tax benefits that way.
In this article, I will explore each of the aforementioned “CPP boosting strategies” in detail.
Delaying taking CPP
The most obvious and well-known way to boost your CPP payouts is to delay taking benefits. Your CPP payout is reduced by 7.2% for each year you receive benefits prior to age 65. Your payout is increased by 8.4% per year for each year after 65 that you don’t take benefits. If you live to 81 years of age, then your cumulative benefits are maximized by taking CPP in your mid-60s.
The average life expectancy in Canada is 81.75 years, so there’s a case to be made for delaying taking CPP until 65 or 66, but not later than that. If you come from a long line of people who lived well into their 90s, then perhaps waiting until age 70 is ideal.
Reversing your decision to take benefits
For the most part, the decision to take CPP benefits is irrevocable. Once 12 months have elapsed from the first day you receive benefits, you can’t reverse your decision. If, however, less than 12 months have elapsed, you can reverse the decision, stop receiving benefits, and resume accumulating them. So, if you already took CPP at a young age and are just now realizing you should have waited longer, you may be able to reverse the decision.
Making RRSP contributions
Making RRSP contributions is part of a larger strategy of using tax breaks to lower your taxable income. This strategy can get fairly complex, and in general, claiming questionable tax breaks risks putting you in the Canada Revenue Agency’s bad books. I highlight RRSP contributions here because they are relatively “safe” and approved by the authorities. If you want to pursue more complex tax strategies, speak with an accountant.
In general, it’s good to invest your RRSP money into blue-chip dividend stocks. Consider Rogers Communications (TSX:RCI.B) stock, for example. It’s a Canadian telecommunications company that provides cellular, TV, and internet services and also owns some media properties.
Rogers is one of the strongest telcos in Canada. It has the highest market share of the “Big Three.” It just recently finished buying its competitor, Shaw Communications. It has delivered high growth in free cash flow over the trailing three- and five-year periods. Its growth in operating income has been consistently positive over every commonly used timeframe. Finally, it has a 73% free cash flow margin and an 8.3% return on equity, making it one of the most profitable Canadian telcos.
The company has every financial advantage the other Canadian telcos have while being priced more cheaply. Perhaps investors are ignoring it because of its comparatively low dividend yield. I see that characteristic as a positive: the other telcos’ payout ratios are too high. On the whole, RCI.B looks like a good RRSP holding today.
