CPP $536.90 Increase in 2021: Your Paycheck Might Get Smaller!

With CPP increasing for next year, make sure you take full advantage of that income by investing in this stock!

| More on:
funds, money, nest egg

Image source: Getty Images

If you’re looking to retire in the near future, you need every penny you can get. That makes the recent news that you could soon be seeing a smaller pay cheque hurt all that much more. This is because the Canada Revenue Agency (CRA) is increasing the Canada Pension Plan (CPP) yet again in 2021.

These contributions are set to continuing increasing between 2019 and 2023. Of course, the government couldn’t have predicted a pandemic amidst an economic downturn. So this couldn’t be worse timing. That’s especially with layoffs continuing and the country racking on debt.

So let’s dig into what exactly is going to happen to your CPP contributions by the CRA, and what you can do about it.

CPP: How it works

Back in June 2016, the government announced it would be making these increases to CPP. However, the CRA stated it wouldn’t actually take affect until 2019. So, 2019 hit and CPP contributions were increased. So, in 2021 this will continue, resulting in a lesser pay cheque for individuals.

How? Every paycheque you have contributes to CPP, both from your pay cheque and from your employer. Most employers offer a matching program. Last year, the increase was 5.25%. So this year, employees and employers will contribute a further $268.45 more, or $3,166.45, in 2021. That’s a total increase of $536.90, or $6,332.90 total, for the year, and that same amount off your paycheque.

Of course the goal is for Canadians to have cash available when they retire. This is a good thing! However, there are multiple variables to this. When you start taking out the cash, if you’ll live long enough to see it all, and whether you could be investing that money instead and seeing larger returns.

What to do about it

It’s simple. Invest in companies that can make up your shortfall. This means finding companies that could bring in an extra $6,332.90 in passive income for the year, or $536.90 per month. It’s a simple solution but difficult to execute without the knowledge of safe investments.

If you’re going to retire in the next few years, then a great option is to choose the energy sector. Oil and gas may be on the way out, but this isn’t likely for several decades. Even if it is phased out, you’ll still continue to see strong returns and sold passive income for the next several years at the very least.

A great option to consider is Pembina Pipeline Corp. (TSX:PPL)(NYSE;PBA). The company has invested in several growth projects to bring an end to the oil and gas glut across North America.

When it’s up and running, the company should see shares soar to double what shares are now. Meanwhile, investors get an incredible 7.66% dividend yield dished out monthly.

Bottom line

To meet that $536.90 monthly goal, you would need to purchase 2,556 worth of shares. That would bring your total investment to $86,927 as of writing. That can’t be done in your Tax-Free Savings Account (TFSA) alone.

However, you can either split the difference in your Registered Retirement Savings Plan (RRSP), or even better split it between you and your partner! You can then create a diverse portfolio, always recommended, while still bringing in that passive income every month, tax free!

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 Amy Legate-Wolfe owns shares of PEMBINA PIPELINE CORPORATION. The Motley Fool recommends PEMBINA PIPELINE CORPORATION.

More on Dividend Stocks

Two seniors float in a pool.
Dividend Stocks

TFSA: How to Earn $1,890 in Annual Tax-Free Income

Plunk these investments into your TFSA to earn passive income and avoid the taxman.

Read more »

Engineers walk through a facility.
Dividend Stocks

1 TSX Stock I Wouldn’t Touch With a 10-Foot Pole

AtkinsRéalis (TSX:ATRL) is one TSX stock I'd never invest in.

Read more »

edit Woman in skates works on laptop
Dividend Stocks

3 No-Brainer Stocks to Buy Under $30

These three stocks all offer a huge deal for investors looking for dividends, as well as growth that will last.

Read more »

You Should Know This
Dividend Stocks

How to Convert a $300 Monthly Investment Into $338 in Monthly Income

If you want a certain amount in monthly passive income, invest a similar amount today and leave the rest to…

Read more »

Increasing yield
Dividend Stocks

3 Income Stocks With Big Yields to Consider in April 2024

If you haven’t yet made your March investments, here are three income stocks to buy the dip and lock in…

Read more »

Senior Man Sitting On Sofa At Home With Pet Labrador Dog
Dividend Stocks

RRSP Investors: Don’t Miss Out on This Contribution Hack!

This hack has so many benefits for you -- not just when you put it in your RRSP but for…

Read more »

A red umbrella stands higher than a crowd of black umbrellas.
Dividend Stocks

Passive Income: 2 Safe Dividend Stocks to Own for the Next 10 Years

Dividend stocks such as Manulife and Fortis can help you generate a stable and recurring passive-income stream.

Read more »

Young woman sat at laptop by a window
Dividend Stocks

3 Dividend Stocks Everyone Should Own for the Long Haul

For investors looking for top-tier dividend stocks to buy and hold for the long term, here are three of my…

Read more »