Yahoo Finance Retirees: Here’s How to Boost Your CPP Pension in 2024
Written by Andrew Button at The Motley Fool Canada
If you’re a retiree interested in boosting your CPP pension, you’ve probably heard that it’s impossible. “You can increase your CPP by working more or delaying benefits, but if you’re already retired, it’s game over” is pretty much the standard line. It’s kind of true, but it’s not the full story. While it’s impossible to increase your pre-tax CPP 12 months after you’ve started receiving it, you can
Increase your after-tax amount; and
Supplement your CPP with investments.
In this article, I will review two methods to increase the CPP you actually receive (hint: both involve your Registered Retirement Savings Plan, or RRSP).
Make RRSP contributions
Making RRSP contributions can increase your after-tax CPP by lowering your income. CPP is income like any other; if your income is lower, you’ll likely pay less tax on it. Specifically, you need to make enough RRSP contributions to push you into a lower tax bracket.
For example, the second-lowest federal tax bracket in Canada starts at $55,867. If you make $60,000 a year with CPP and all other income sources combined, you can push yourself down a bracket with $4,134 in RRSP contributions. That should reduce the amount of tax you pay on your CPP benefits — maybe not immediately, but certainly when you get your tax refund.
You must invest in order to maximize your RRSP benefits
You can reduce your CPP pretty easily with your RRSP contributions. However, there is no point in making an RRSP contribution if you don’t invest. The tax break on contribution isn’t much of a benefit in itself, the years of tax-free compounding (i.e., un-taxed growth) are what really make the RRSP valuable.
So, you should invest in assets. For beginner investors, things like index funds and Guaranteed Investment Certificates are ideal. If you’re a bit more experienced, you could try dividend stocks.
Such stocks pay a lot of cash income — more than the market indexes do on average. Consider a stock like TD Bank (TSX:TD), for example. TD Bank is a Canadian bank stock that has a 5.05% dividend yield at today’s prices. Such a yield means that you get $5,050 in annual cash back if the dividend never changes. The really cool part is that TD’s dividend has historically changed — it has gone up — and the current macroeconomic environment is a good one for banks in many ways.
Interest rates are high, yet inflation rates are falling, which argues that we are seeing a “plateau” in interest rates. It’s in environments like this one that banks tend to make good money because rates are high enough for banks to collect a lot of interest, but inflation is not so high as to demand further rate hikes, diminishing the value of outstanding fixed-rate loans. It’s a good time to be a bank. And TD is one of the best banks in Canada.
Foolish takeaway
Can you really increase your CPP benefits after you’ve started taking them? In one sense, yes; in another sense, no. CPP is inflation-indexed, and from 12 months after you receive your first CPP payout, you should see slight increases in its amount each year. These increases are incremental, though, and there is nothing you can do to cause a large one-time jump in pre-tax amounts after 12 months. You can, however, increase your after-tax amount. By making regular RRSP contributions, you can lower your marginal tax rate and take home more CPP. You may even get a little investment income out of it someday.
The post Retirees: Here’s How to Boost Your CPP Pension in 2024 appeared first on The Motley Fool Canada.
Should you invest $1,000 in TD Bank right now?
Before you buy stock in TD Bank, consider this:
The Motley Fool Stock Advisor Canada analyst team just identified what they believe are the 10 best stocks for investors to buy now… and TD Bank wasn’t one of them. The 10 stocks that made the cut could potentially produce monster returns in the coming years.
Consider MercadoLibre, which we first recommended on January 8, 2014 ... if you invested $1,000 in the “eBay of Latin America” at the time of our recommendation, you’d have $15,578.55!*
Stock Advisor Canada provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month – one from Canada and one from the U.S. The Stock Advisor Canada service has outperformed the return of S&P/TSX Composite Index by 32 percentage points since 2013*.
See the 10 stocks * Returns as of 3/20/24
More reading
Can You Guess the 10 Most Popular Canadian Stocks? (If You Own Them, You Might Be Losing Out.)
How to Build a Bulletproof Monthly Passive-Income Portfolio in 2024 With Just $25,000
Fool contributor Andrew Button has positions in Toronto-Dominion Bank. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
2024
