CPP Enhancements: Boosting Your Retirement Income in 2024

Do you want more monthly income than CPP has to offer? Pick up this ETF, and look into these many other benefits to the CPP payment.

Amy Legate-Wolfe

Amy became interested in investing in 2018 after having her first daughter. After receiving a masters degree in journalism from Western University, she became frustrated that the finance industry remained a confusing place for Canadians like her: new parents, millennials, and other young people who needed to understand their finances. Now, Amy focuses on tech companies and renewable energy for growth opportunities, coupling that with long-term investing strategies and equities. She also provides investors with a daily newsletter, Canada Stock Digest, for daily market updates. Before joining Motley Fool Canada, she wrote for major news organizations including HuffPost, CTVNews.ca, and CBC. When she’s not researching investing strategies, Amy’s time is pretty much monopolized by her two wild daughters, but in what little spare time she has she loves to do yoga, go on walks with her dog, and travel with her husband. Follow Amy on LinkedIn and Canada Stock Digest. Favorite Investment Quote: “October: This is one of the particularly dangerous months to speculate in stocks. The others are July, January, September, April, November, May, March, June, December, August and February.” – Mark Twain

Published August 1, 2024 3:45 pm EDT

| More on: FIE

Maximizing your Canada Pension Plan (CPP) retirement income is essential for ensuring financial stability in your golden years. But how can you do that when you only get a set amount from CPP? Let’s get into some ways to boost that income immediately.

woman retiree on computer — Image source: Getty Images

Delay!

One of the most effective ways to increase your CPP income is to delay taking your payments. While you can start receiving CPP at age 65, postponing your benefits until age 70 increases your pension by 0.7% for each month you delay, up to a maximum of 42%. This strategy is particularly beneficial if you have a longer life expectancy.

If your health and circumstances allow, continuing to work past 65 can boost your CPP benefits. Contributions made during these years can enhance your post-retirement benefits, providing additional income when you eventually retire.

In that time, ensuring that you contribute the maximum allowable amount to CPP during your working years is crucial. Higher contributions lead to higher benefits. If you continue working past 65, you can still contribute to the CPP, increasing your post-retirement benefit.

What’s more, since 2019, CPP enhancements have been gradually increasing contributions and benefits. Ensure you are aware of these changes and how they might positively impact your future CPP benefits.

Personal benefits

There are also many family-related benefits to take advantage of. For instance, if you took time off work to raise children under the age of seven, the CPP child-rearing provision can help. This provision excludes these low-earning periods from the CPP calculation, potentially increasing your benefits.

Sharing CPP benefits with your spouse, especially if they have lower CPP benefits, can balance your income and potentially reduce your overall tax burden. This strategy can be particularly beneficial for couples in retirement.

Outside the home, take full advantage of your employer’s pension plan. Many employers offer matching contributions to retirement plans, which can significantly boost your overall retirement income.

Supplement with other income

In addition to maximizing your CPP, consider other retirement savings plans such as RRSPs (Registered Retirement Savings Plans) and TFSAs (Tax-Free Savings Accounts). Diversifying your income sources provides greater financial security. These can include everything from dividend-paying stocks to bonds and annuities.

One great example is iShares Canadian Financial Monthly Income ETF (TSX:FIE). It’s a compelling investment choice for turning your CPP payments into more money. This exchange-traded fund (ETF) invests in a diversified mix of financial securities, including banks, insurance companies, and real estate investment trusts, which are known for stability and consistent dividend payouts. The Canadian banking system is well-regulated and has a strong track record, adding a layer of security to your investment.

FIE’s monthly income distribution aligns well with the need for regular cash flow in retirement. That income currently stands at a 6.8% dividend yield. Instead of quarterly dividends, FIE provides monthly payouts, which are beneficial for retirees covering monthly expenses. Reinvesting these dividends can compound returns over time, increasing overall investment growth.

Additionally, FIE employs a covered call strategy to enhance income through option premiums. This strategy involves writing call options on a portion of the ETF’s holdings, generating additional income on top of the dividends. This approach, while limiting some upside potential, suits income-focused investors seeking to maximize yield. The combination of stable financial sector exposure, monthly income, and an enhanced income strategy makes FIE an attractive option for leveraging your CPP payments to generate more retirement income.

Bottom line

Don’t give up when it comes to retirement income. You can always earn more. By combining these strategies and investment options, you can significantly boost your CPP retirement income in 2024, ensuring a more comfortable and secure retirement — especially with FIE ETF.