Are you nearing retirement age?
Do you want to increase the CPP benefits that you receive when you retire?
If so, you have a few options available to you. If most of your working life is behind you, then you can’t increase your CPP benefits by a whole lot, but you can increase them marginally. In this article, I’ll reveal two strategies you can employ to maximize your CPP benefits so you retire more comfortably.
Work more years
The most obvious and straightforward way to boost your CPP benefits is to delay retirement past your 60th birthday. The longer you wait to take CPP, the more benefits you get per year. The average worker gets about $770 per month from CPP when he/she retires. The amount can grow to $1,306 per month if you wait until age 65. So, the more years you wait to take CPP benefits, the more you will receive per year. The flipside of this is that you will receive fewer total years of benefits. So weigh the choice to delay taking CPP benefits carefully: if you have urgent health needs, it may make more sense to take the benefits sooner rather than later.
Work more overtime
Another way you can boost CPP benefits (potentially) is to work as much overtime as you can get. If your earnings are currently lower than the maximum pensionable earnings threshold, then you can pay more premiums into the system by working more hours. You pay CPP premiums on amounts up to $66,600 in income. If you’re earning less than that now, you can work overtime, or take a second job, or start a side hustle. In doing so, you can boost your earnings up to the maximum pensionable earnings threshold, and ultimately boost your future CPP benefits.
Sound like too much? Try investing instead
If all this “work longer” and “work more hours” business sounds like a drag to you, you’re not alone. Four out of 10 Canadians take CPP benefits at age 60. They may have valid reasons for doing so. Not everybody wants to work well into their 60s, and not everybody is able to. Perhaps, taking CPP at age 60 is the right move for you after all.
If so, you may wish to consider investing your savings. If you have a few hundred thousand dollars saved up, you may be able to generate thousands of dollars per year in dividend income. That may be enough to take your total retirement income up to an acceptable level, even if your CPP benefits are meagre. You can invest in many different kinds of assets: index funds, GICs and individual stocks. They all have their pros and cons. Individual stocks merit the most attention because they are among the trickier investments to get right.
Consider The Toronto-Dominion Bank (TSX:TD), for example. It’s a bank stock that has a 4.84% dividend yield. With a 4.84% yield, you only need to invest a few hundred thousand dollars to get tens of thousands a year in extra income going. For example, if you invest $220,000 into a stock yielding 4.84%, you’ll get approximately $10,000 back in passive income each year.
The thing about individual stocks like TD Bank is that they are exposed to “specific risk,” meaning risk inherent to individual companies. All stocks are exposed to market risk, but if you hold individual stocks at heavy weightings, you increase your exposure to those stocks’ individual risk factors. In TD’s case, those risk factors include the presently inverted treasury yield curve (may squeeze the bank’s margins), a money laundering investigation by the U.S. Department of Justice, and a shaky housing market. If you invest a lot of money into TD Bank stock, you need to be aware of these risks. Regardless, its yield goes to show just how much income is possible with dividend stocks.
