The CPP, or Canada Pension Plan, is a retirement benefit that is taxable. It is a monthly payout that replaces a portion of your income in retirement. To qualify for the CPP, you need to be a Canadian resident over the age of 60, having made at least one valid contribution to the pension plan.
How will the CPP enhancement affect you?
The CPP is initially expected to increase 25%, or one-fourth of your employment income. However, the average annual CPP payment in 2023 is less than $10,000, which is not enough to lead a comfortable retired life in Canada.
So, the Canadian government decided to gradually enhance the CPP since 2019, which will result in higher future benefits and improve financial stability. CPP contribution rates began to rise modestly in January 2019 and will continue through the end of 2025. For instance, if you earned $55,000 annually, your CPP contribution in 2023 will increase by $128.75 compared to 2022.
The amount by which your CPP will increase will depend on the timeline and amount of your contributions. So, Canadians who entered the workforce in 2019 will reap the benefits of the CPP enhancement program.
Canadians should know that the CPP enhancement will benefit individuals who have worked and contributed to the plan in 2019 or later. If you have retired before 2019, your CPP payments will remain unchanged.
You can increase the CPP payout by 50%
The CPP enhancement will now help you replace one-third, or 33%, of average work earnings received after 2019. Moreover, the maximum limit of earnings that is protected by the pension plan will rise by 14% between 2024 and 2025.
The CPP enhancement will be the highest for those who make enhanced contributions for 40 years. In these cases, the maximum payouts will increase by more than 50%.
Invest in dividend stocks to supplement the CPP
You can boost your CPP payments significantly due to the above-mentioned enhancements. But Canadians should also look to create multiple passive-income streams to supplement these pension plans. One way to create a recurring income stream is by investing in blue-chip dividend stocks such as Manulife Financial (TSX:MFC).
Valued at a market cap of $45 billion, Manulife is a TSX giant and is part of the financial services industry. Its two major business segments include Wealth & Asset Management and Insurance & Annuity.
Manulife pays shareholders a tasty dividend yield of $1.46 per year, translating to a dividend yield of 5.8%. These payouts have increased at an annual rate of 6.6% in the last 20 years. Priced at 7.6 times forward earnings, MFC stock is really cheap, given its tasty dividend yield and estimated earnings growth, which are forecast to rise 7.4% annually in the next five years.
With $1.3 trillion in assets under management, Manulife has increased earnings from $5.9 billion in 2020 to $7.3 billion in 2022, showcasing the resiliency of the company’s financials. It is also fast gaining traction in Asia, which is one of the fastest-growing regions globally.
Due to its cheap valuation, MFC stock is priced at a discount of 17.5% to consensus price target estimates.
