Canadian Pension Plan (CPP) has been around since 1995. Despite being relatively new to other federal pension schemes, CPP has become a popular post-retirement plan for many working Canadians.
What makes CPP more interesting is that it works on the mantra, “You get what you give.” Any Canadian from age 18 to 65 is eligible to make monthly CPP contributions.
Average CPP payout
As of now, the average monthly CPP payout is around $640. The majority of retirees are only able to get average and below-average CPP payouts.
There are many reasons behind not getting qualified for the maximum CPP payment. The primary reason people can’t qualify for maximum CPP payout is that they fail to bring off the consistency that its monthly contributions demand.
Maximum CPP payout
This year, the maximum CPP monthly payout is $1,175.83 — nearly double the average payout. However, only 6% of CPP members qualify for maximum CPP. There are two main reasons why it is so hard to qualify for maximum CPP payouts.
You have to contribute for 83% of the time in which you are eligible to make CPP contributions. In other words, every Canadian is eligible to contribute to CPP for 47 years. This means they have to roughly add for 39 years to the CPP to fulfill the 83% condition.
While being consistent with your contributions, you also need to have the annual earnings that match up with the Yearly Maximum Pensionable Earnings (YMPE) set by the CRA and CPP. The YMPE for 2020 has been revised with an increment of $1,000. This year it is $58,700.
In short, you need to make maximum CPP contributions for 39 years while making equal or more than the YMPE.
Investing in dividend stock can help in qualifying for maximum CPP
Investing in dividend stock is a great way to offset the cash outflow caused by CPP contribution. Reasonable dividend payments can also help you in registering your income over YMPE.
The telecommunication company with various mass media assets has been paying dividends since 1983. It is currently registering the dividend yield of 5.12%. If we factor in the stock growth, then this dividend yield seems more lucrative.
BCE stock has experienced 47.74% growth in the last five years. The 19 times trailing price to earnings ratio of the company also suggests that the company hasn’t disappointed its investors. The $10,000 invested in BCE five years ago would have turned $14,814.56 today and that too without dividend reinvestment.
With 5G growth plans in the pipeline, we could expect that BCE will continue to pay its investors dividends without making any cuts.
Qualifying for maximum CPP payouts is nothing short of an achievement. It can bring more ease to your post-retirement life in terms of finances. But you can only get to that finish line if you are making smart investment decisions today.
Investing in a dividend stock like BCE that offers great cash inflow can help you meet the YMPE requirements and neutralize the dent made by CPP monthly contributions.
Renowned Canadian investor Iain Butler just named 10 stocks for Canadians to buy TODAY. So if you’re tired of reading about other people getting rich in the stock market, this might be a good day for you.
Because Motley Fool Canada is offering a full 65% off the list price of their top stock-picking service, plus a complete membership fee back guarantee on what you pay for the service. Simply click here to discover how you can take advantage of this.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.
Fool contributor Jason Hoang has no position in any of the stocks mentioned.