This probably isn’t the first “average CPP (Canada Pension Plan) benefit at a given age” article you’ve ever read. The genre is pretty popular in Canadian personal finance publications. Perhaps you think you’ve read this story before, but wait — there’s something new this time around!
The CPP is inflation-indexed, meaning that the amount goes up a little each year. Theoretically, it can go down in times of deflation, although that rarely happens. The point is, the amounts change. It’s a new year, and that means that baseline CPP amounts are different from what they were last year. Though we are well into 2024 by now, the new average CPP amounts were only published last month. So, read on to learn about the new average CPP benefit for those taking CPP for the first time in 2024.
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$831
According to the federal government’s website, the average CPP benefit for someone taking benefits for the first time at age 65 in 2024 is $831. That’s a pretty significant increase from last year’s $758. The maximum amount also increased from $1,306 to $1,364.
We can also approximate the average amounts for Canadians taking CPP at age 60 and 70 using the data above. These estimates won’t be exact because they aren’t reported directly by the government. However, there are formulas that determine what you get in CPP at ages other than 65, holding every other variable constant. Specifically, you get 7.2% less for each year you receive CPP prior to your 65th birthday and 8.4% more for each year you delay past age 65. Therefore, if the average CPP recipient taking benefits at age 60 or 70 is otherwise identical to the average recipient taking benefits at 65, their benefits are as follows:
- $531 for the person taking benefits at age 60
- $1,180 for the person taking benefits at age 70
What should you do if you don’t want to delay taking CPP benefits
Clearly, there is much to be gained by delaying taking CPP benefits. The average monthly amount for those taking benefits at 70 is more than double the amount earned by those taking them at 60.
Fortunately, if you feel like throwing in the towel and taking CPP young, not all hope is lost. If you have some savings, you can invest in dividend stocks and index funds and generate passive income that supplements your CPP.
You can maximize your returns on such stocks by holding them in a Tax-Free Savings Account (TFSA).
Let’s imagine that you had a 33% marginal tax rate and held Fortis (TSX:FTS) stock in a taxable account. Fortis is a dividend stock with a 4.4% yield, which means it pays out a lot of taxable income if you don’t put it in a tax shelter like a TFSA.
If you hold $95,000 worth of FTS in a taxable account, you’d get $4,180 in dividends from the shares. The tax treatment would go like this: first, your dividends could be “grossed up” (i.e., multiplied by 1.38) to $5,768.40. Then, your 33% tax ($1,903) would be assessed on the grossed-up amount. Then, a 15% credit ($865.20) would be assessed on the grossed-up amount. The difference between the tax assessed and the credit ($1,037.80) would be your taxes owing.
If, however, you hold all those Fortis shares in a TFSA, you’d pay $0! And it just so happens that $95,000 is about the amount of contribution room that has accumulated since the TFSA was introduced in 2009, so you could indeed make that whopper of tax savings happen in real life.
