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Retirees: Here’s 1 Simple Trick to Max Out Your CPP Pension

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Canada Pension Plan (CPP) users who received the maximum payout did a herculean task. It’s a tough goal to achieve, and based on 2016 data, only 6% of CPP recipients did the impossible. Strictly speaking, you must have contributed at least 39 years between the age of 18 and 65.

Many would-be CPP claimants don’t aspire for the maximum payout. However, an important decision is the most straightforward trick to receive higher pension payments. If you’re in good health and no urgent financial needs, delay your CPP until age 70.

Don’t worry about getting nothing from the CPP when you retire, because the money will be there waiting for you. According to the Canada Pension Plan Investment Board (CPPIB), the CPP fund’s long-term returns remain healthy for generations to come. As of Q1 fiscal 2021 (quarter ended June 30, 2020), the net assets stand at $434.4 billion.

Permanent increase

If you push the numbers and aim to retire at 65 (default age), you can expect an annual CPP pension of $8,524.94, on average. However, there’s an incentive when you wait five more years. Starting your CPP at 70 automatically increases the pension by 42%, or 8.4%, per year after 65.

The permanent increase is substantial, as you add $3,580.47 annually to your CPP. Your Old Age Security (OAS) is available at 65, but you can delay it until 70 to get a second incentive. This time, the permanent increase is 36%. Instead of $7,362.36, your annual OAS benefit swells to $10,012.18.

Thus, an individual retiree claiming the CPP and OAS at 70 would receive an annual retirement income of at least $22,118.22, or $1,843.19 per month. You can now estimate your retirement expenses to see whether you can retire with only the CPP plus OAS as your income sources.

Power your retirement income

Capital Power (TSX:CPX) is not only a high-yield asset but a safe dividend stock, too. At $35.11 per share, the $3.7 billion independent power producer pays an over-the-top 5.84% dividend. If you own $207,250 worth of this utility stock, your annual dividend is $12,103.40, which matches your CPP pension.

One good thing about Capital Power is that it’s a growth-oriented power producer. The company is well positioned to capitalize on the increasing demand for renewable energy sources. Management maintains its focus on clean and green energy.

Capital Power’s cash flows are stable and predictable, owing to secured fixed-price contracts that average 10 years. Two renewable projects will commence operation soon. The Whitla Wind facility will add 54 MW capacity in late 2021, while the Strathmore Solar project, with its generation capacity of 40.5 MW, will begin commercial operations in early 2022.

Expect Capital Power to preserve its status as North America’s leading power supplier. The company is unrelenting in pursuing growth in contracted power generation across the region. Its renewables portfolio will create more shareholder value in 2020 and beyond. Take a position now before the price appreciates.

Constructive advice

Retirement experts warn of the harsh realities of retirement. Living expenses are ever increasing, while medical bills could add to your financial burden. It would be best to create another income source to prevent economic dislocation and hedge against inflation.

Speaking of one simple trick to max out your CPP pension...

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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 Christopher Liew has no position in any of the stocks mentioned.

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