Your salary slip comes with certain deductions, such as the Canada Pension Plan (CPP). Whether you are employed or self-employed, you have to contribute towards CPP. And this contribution is about to increase by $200-$350 a year as the CPP enhancement program enters the next stage. This contribution can give you up to 50% higher payout and replace as much as 33% of your average income when you retire.
How to earn a $1,855/month maximum CPP payout
If you are retiring this year, this might interest you. The average CPP payout for 2023 is $760.07/month. But you can also get the maximum CPP benefit of $1,306.57/month if you made a maximum CPP contribution for 40 years. But that is not the maximum. You can also get $1,855/month if you start collecting your CPP payout at age 70.
| Age | Average CPP Payout Per Month | Maximum CPP Payout Per Month |
| 65 years | $717.50 | $1,307 |
| 70 years | $1,018.35 | $1,855 |
There is an $800/month difference in the maximum and average CPP payout at age 70. This benefit is for those retiring this year. You have already missed the bus to get the maximum CPP payout if your contribution was not maximum.
Future retirees can learn from the present retirees and strive to get the most out of CPP benefits.
At what salary will you qualify for a 50% increase in CPP payout?
Your 2023 maximum CPP contribution is $3,754.45 if you are employed. Those who are self-employed will contribute both employee and employer contributions of $7,508.9 maximum. This contribution is only possible if your salary is $5,500/month.
The Canada Revenue Agency (CRA) increases the salary bracket for maximum CPP contribution annually by around 3-5%. Even if your salary grows by 5%, you won’t qualify for a 50% increase in CPP payouts. It is because the CRA will start a phase two contribution, wherein it will increase the maximum pensionable earning by approximately 14% of the phase one limit for 2024 and 2025. Beyond 2025, the maximum limit of both phases will grow simultaneously.
Assuming the 2024 maximum pensionable earnings is $68,600, the phase two maximum earnings limit could be $78,200 (14% jump). So, if your monthly salary is a little above $6,500, only then will you be able to make the maximum CPP contribution and qualify for 50% CPP benefit. In 2025, those earning $6,800 a month could max out on their CPP contribution.
Accelerate your income through investments
To invest more, you need to save more. And to save more, you need to earn more. But you can earn more from investment. Let’s see how. The CRA allows you to invest $6,500 in Tax-Free Savings Account (TFSA). This maximum is lower than your total (employee and employer) maximum CPP contribution.
You can invest a portion of your $6,500 contribution in high-growth stocks like Ballard Power Systems (TSX:BLDP) that could grow your money. It makes hydrogen fuel cells that can make commercial vehicles run on water. Green hydrogen is the future as it has the potential to bring energy security and contribute significantly to net zero emission.
The rate at which climate change is affecting economies with heat waves, floods, and tornadoes, green energy will have a growth spurt sometime in the future. Europe, which doesn’t have oil reserves, intends to allocate about US$4 billion to 41 low-carbon projects, of which more than half are related to green hydrogen production.
Ballard Power Systems stock can surge from $6 to $25 in the short term when major economies announce green energy policies. A $2,000 investment in BLDP could grow to $8,275 if the above growth materializes. If you don’t want to hold the stock for long, you can book a profit, invest that money in dividend stocks, and accelerate your income.
TransAlta Renewables stock has a 7% dividend yield. Assuming it retains this yield, a $2,000 investment can give you $140 a year but $8,000 can give you $560 a year. This way, you can accelerate your income and investment simultaneously.
