Retirees: Here’s How to Boost Your CPP Pension in 2024

You can invest your RRSP contributions in stocks like Toronto-Dominion Bank (TSX:TD) and supplement your CPP income.

| More on:
Path to retirement

Image source: Getty Images

If you’re a retiree interested in boosting your CPP pension, you’ve probably heard that it’s impossible. “You can increase your CPP by working more or delaying benefits, but if you’re already retired, it’s game over” is pretty much the standard line. It’s kind of true, but it’s not the full story. While it’s impossible to increase your pre-tax CPP 12 months after you’ve started receiving it, you can

  1. Increase your after-tax amount; and
  2. Supplement your CPP with investments.

In this article, I will review two methods to increase the CPP you actually receive (hint: both involve your Registered Retirement Savings Plan, or RRSP).

Make RRSP contributions

Making RRSP contributions can increase your after-tax CPP by lowering your income. CPP is income like any other; if your income is lower, you’ll likely pay less tax on it. Specifically, you need to make enough RRSP contributions to push you into a lower tax bracket.

For example, the second-lowest federal tax bracket in Canada starts at $55,867. If you make $60,000 a year with CPP and all other income sources combined, you can push yourself down a bracket with $4,134 in RRSP contributions. That should reduce the amount of tax you pay on your CPP benefits — maybe not immediately, but certainly when you get your tax refund.

You must invest in order to maximize your RRSP benefits

You can reduce your CPP pretty easily with your RRSP contributions. However, there is no point in making an RRSP contribution if you don’t invest. The tax break on contribution isn’t much of a benefit in itself, the years of tax-free compounding (i.e., un-taxed growth) are what really make the RRSP valuable.

So, you should invest in assets. For beginner investors, things like index funds and Guaranteed Investment Certificates are ideal. If you’re a bit more experienced, you could try dividend stocks.

Such stocks pay a lot of cash income — more than the market indexes do on average. Consider a stock like TD Bank (TSX:TD), for example. TD Bank is a Canadian bank stock that has a 5.05% dividend yield at today’s prices. Such a yield means that you get $5,050 in annual cash back if the dividend never changes. The really cool part is that TD’s dividend has historically changed — it has gone up — and the current macroeconomic environment is a good one for banks in many ways.

Interest rates are high, yet inflation rates are falling, which argues that we are seeing a “plateau” in interest rates. It’s in environments like this one that banks tend to make good money because rates are high enough for banks to collect a lot of interest, but inflation is not so high as to demand further rate hikes, diminishing the value of outstanding fixed-rate loans. It’s a good time to be a bank. And TD is one of the best banks in Canada.

Foolish takeaway

Can you really increase your CPP benefits after you’ve started taking them? In one sense, yes; in another sense, no. CPP is inflation-indexed, and from 12 months after you receive your first CPP payout, you should see slight increases in its amount each year. These increases are incremental, though, and there is nothing you can do to cause a large one-time jump in pre-tax amounts after 12 months. You can, however, increase your after-tax amount. By making regular RRSP contributions, you can lower your marginal tax rate and take home more CPP. You may even get a little investment income out of it someday.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Andrew Button has positions in Toronto-Dominion Bank. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

More on Dividend Stocks

Increasing yield
Dividend Stocks

3 Overlooked High-Yielding Dividend Stocks to Buy Right Now

These three dividend stocks are excellent buys, given their discounted prices and high yields.

Read more »

Dad and son having fun outdoor. Healthy living concept
Dividend Stocks

Married? Have Kids? Grab These 5 CRA Tax Breaks

You can transfer dividend income from stocks like Suncor Energy Inc (TSX:SU) to your spouse and enjoy tax savings that…

Read more »

You Should Know This
Dividend Stocks

Why Claiming CPP at 65 Could Be a Mistake

The CPP pegs the start retirement age at 65, but it's not necessarily the ideal option to start pension payments.

Read more »

dividends grow over time
Dividend Stocks

1 Passive-Income Stream and 1 Dividend Stock for $235.30 in Monthly Cash

The easiest way of creating passive income comes from from something you have to do anyway. Add in dividend income,…

Read more »

edit CRA taxes
Dividend Stocks

CRA: This Tax Break Can Help You Save Serious Money in 2024

This tax credit is one you've likely missed in the past but could provide you with thousands each year! So,…

Read more »

Volatile market, stock volatility
Dividend Stocks

1 Dividend Stock Down 20% to Buy Right Now

Sienna stock (TSX:SIA) looks like a strong dividend stock that's only getting stronger, but there is more growth available.

Read more »

money cash dividends
Dividend Stocks

2 Dividend Stocks That Could Create $553.72 in Passive Income in 2024

Investors can be safe while still making large amounts of passive income, even from an investment you can afford!

Read more »

Path to retirement
Dividend Stocks

Cutting This 1 Expense Could Save You Thousands in Retirement

You can save a lot for retirement by cutting out expenses, and you can invest your savings in stocks like…

Read more »