The Canadian Pension Plan (CPP) is often cited as having a maximum payout of $1,306. And this is certainly true, but only for those Canadians who choose to retire at age 65.
Yet for those waiting until age 70, that number increases significantly.
See, for every year that you wait to cash out on your CPP income, about 8% of additional income is added each year. So if you want to truly max out on your CPP income, then you’re really aiming for a goal of $1,855 instead of $1,306.
But there’s one thing
Canadians collect CPP as part of their income throughout their life. So, there’s another point to note if you want to max out on those CPP payments, and that’s by making sure you’ve made a certain amount of money for a certain period of time. This ensures you’ll be reaching the maximum pensionable earnings.
For 2023, the earnings threshold is now at $66,600. So, after reaching that amount, CPP won’t be deducted from any dollar beyond that. If you’re not there yet, one of the easiest ways to increase your salary is by finding a new job.
In fact, a study by the Pew Research Center found that more Americans in 2022 were switching jobs for higher-paying positions than ever before. What’s more, they were getting it! Of those that switched jobs, 60% of workers received a real wage increase from their new employer. An Indeed study in the United Kingdom found that average pay increased by 9.5% when switching positions. It’s also why it’s recommended that employees switch to a new business every two to three years to increase their pay.
Claiming CPP
Now that we’ve gone over how to get the most CPP and when to claim it, it’s time to discuss how you can put that CPP to good use. The CPP, after all, is taxable income provided by the government. So, you’ll want to make sure those monthly payments are giving you all they can.
One of the best ways to use that income is to put it in a Tax-Free Savings Account (TFSA). This can help you build a diversified portfolio and, of course, generate passive income.
Before you start investing in a pile of stocks, however, take some of that income and put it towards Guaranteed Investment Certificates (GIC). GICs are a strong investment to keep your cash safe over the next few years, decades, or longer. That way, you can make sure your retirement is set up for the long haul and not just the next few years.
Invest in a passive-income producer
Now for the passive-income part. Once you’ve got your cash stored safely, with an amount dedicated to investing, you can start choosing stocks that align with your short- and long-term goals — some of which include passive-income stocks.
The stock I would go with for retirees these days is TransAlta Renewables (TSX: RNW). The renewable energy company is a perfect choice for those that need cash now from CPP investments but also has a strong long-term outlook.
In the short term, RNW stock receives much of its income from its natural gas resources. However, more and more cash is also going into renewable energy, such as solar and wind. This allows investors to see their finances transition from gas to renewable power without worrying about switching investments.
Bottom line
Meanwhile, you can bring in a dividend yield currently at 6.98% as of writing. So, if you’re using your TFSA to produce passive income, there is enormous potential. For example, investors could take $40,000 of the $88,000 available contribution room and put it towards RNW stock. That would provide you with $2,764.71 in passive income, with shares at $13.60! So, start putting your CPP payments to work today.
