Did you know that the Canada Pension Plan (CPP) can pay up to $1,855?
The most commonly cited “max CPP payout” is $1,306, but that’s for somebody who retires at age 65.
If you wait all the way to age 70, you can indeed get up to $1,855 per month.
However, there’s a catch: you need to have made a certain amount of money for a certain period of time. CPP benefits are not just a function of how long you worked; they are also a function of how much money you made while working. CPP premiums are taken from your paycheque up to a certain amount. This amount is known as “maximum pensionable earnings.” In this article, I will explore the CPP’s “maximum pensionable earnings” threshold for 2023.
In 2023, the maximum pensionable earnings threshold is $66,000. That means CPP premiums are deducted up to that amount but not beyond it. If you earn, say, $50,000, you are paying premiums on less income than someone making $66,600. Therefore, the person earning $66,000 will get more CPP than you.
Can you boost your income if you aren’t there yet?
Having established that higher income (up to $66,000) gets you more CPP, it’s time to ask another question:
Can you boost your income to get up to $66,000 if you aren’t there yet?
This risks getting a little bit outside of my typical subject matter, as it’s a question of employment, not finances per se. But in general, you can boost your earnings by working overtime and taking a second job. More advanced strategies, like trying to get a raise or a promotion, are beyond the scope of this article.
If you want to boost your retirement income without working longer or working more hours, your best strategy is to invest. By investing your money in the markets, you can boost your dividend/interest income, which is another major source of retirement income. If you hold your investments in a Tax-Free Savings Account (TFSA), you pay no taxes on the dividends and interest.
The standard approach to retirement investing is to invest in a portfolio of stock and bond index funds. Such funds spread your eggs across many baskets, reducing the risk in the investment. Investing profitably in individual stocks is harder, but some individual stocks have done well.
Take Royal Bank of Canada (TSX:RY), for example. Over the last five years, it has risen 29% and paid a dividend yielding about 4% the entire time. Royal Bank stock is fairly cheap, trading at about 10 times earnings. Its payout ratio is 52%, which isn’t overly high. So, the dividends that the stock pays out are well supported by the company’s profit. The company generally practices sound risk management, which spares it the fate of banks that don’t manage their books well. Overall, it probably wouldn’t hurt to include an individual stock like RY in your Registered Retirement Savings Plan or TFSA. It could add significantly to your retirement income.