CPP Benefits: How to Take Advantage of the Increase!

Canadians should take advantage of the new CPP enhancement and build a passive-income nest egg with dividend stocks like Brookfield Renewable Partners.

| More on:
A glass jar resting on its side with Canadian banknotes and change inside.

Source: Getty Images

Canada’s senior population is forecast to increase by 68% between 2017 and 2037, making the Canada Pension Plan (CPP) and its payout all the more important for retirees. In this article, we examine the CPP, its recent changes, and the advantages it offers to retirees. Let’s dive deeper.

What is the Canada Pension Plan?

Established in 1965, the CPP is a monthly taxable benefit that aims to replace a part of your income in retirement. To qualify for the CPP, you need to be a Canadian resident over the age of 60 years with at least one valid contribution to this pension plan.

The CPP amount you receive in retirement depends on several factors, such as the average earnings through your working life, the length of these contributions, and the age at which you start the CPP retirement pension. The average age to begin the CPP is 65, but you can receive the benefits as early as age 60 or as late as age 70.

The CPP enhancement

The rising cost of living in recent years has forced the Canadian government to announce a CPP enhancement plan, which provides much-needed financial aid to the country’s working population. The CPP enhancement is designed to increase the retirement income of working Canadians.

Since the start of 2019, Canadian employees have been eligible to make additional contributions to the CPP as part of the enhancement plan. Anyone contributing to the CPP enhancement will receive a higher amount of CPP retirement pension or post-retirement benefit when they retire.

For example, Canadians making enhanced contributions for over 40 years will see a more than 50% increase compared to the maximum CPP retirement benefit.

How do you supplement your CPP in retirement?

The average monthly amount paid for a 65-year-old retiree beginning the CPP in 2024 is $831.92, while the maximum payout stands at $1,364.60. Its evident that Canadian retirees need to have additional sources of passive income to supplement the CPP in retirement. One easy way to supplement the CPP is by investing in blue-chip dividend stocks such as Brookfield Renewable Partners (TSX:BEP.UN).

In the last 20 years, BEP stock has returned 1,600% to shareholders after adjusting for dividend reinvestments. Despite its outsized gains, the TSX dividend stock trades 42.6% below all-time highs and offers you a tasty dividend yield of 5.2%. It means a $10,000 investment in BIP stock will help you earn $520 in annual dividends.

In the first quarter (Q1) of 2024, BIP increased revenue by 12% to US$1.49 billion, higher than estimates of US$1.43 billion. Its funds from operations (FFO) also rose by 8% to US$0.45 per share, higher than estimates of US$0.42 per share. Despite a sluggish macro environment, BEP expects to grow its FFO per share by 10% in 2024, which will allow it to increase dividends by a similar amount.

Brookfield Renewable is also positioned to benefit from the AI megatrend and recently inked a deal with Microsoft. As per the agreement, Brookfield will supply 10,500 megawatts of energy to power Microsoft’s cloud data centre operations in the U.S. and Europe between 2026 and 2030. AI data centres consume a huge amount of energy, making clean energy companies such as Brookfield Renewable a top investment choice right now.

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 Aditya Raghunath has positions in Brookfield Renewable Partners. The Motley Fool recommends Brookfield Renewable Partners and Microsoft. The Motley Fool has a disclosure policy.

More on Retirement

TFSA (Tax free savings account) acronym on wooden cubes on the background of stacks of coins
Retirement

Here’s How Much Canadians Need in Their TFSA to Retire

With one of the highest yields out there, this dividend stock could certainly help increase your TFSA and get you…

Read more »

RRSP Canadian Registered Retirement Savings Plan concept
Dividend Stocks

Here’s the Average RRSP Balance at Age 20 in Canada

It may seem like a long way away, but starting early and investing often can make retirement saving a breeze.

Read more »

senior man smiles next to a light-filled window
Retirement

Maximize Your Monthly OAS Benefit With These Tips

Supplement retirement benefits such as the OAS and CPP by holding dividend stocks such as Brookfield Infrastructure.

Read more »

Hand Protecting Senior Couple
Retirement

2 High-Yield Dividend Stocks for Canadian Retirees

These stocks still offer attractive yields for investors seeking passive income.

Read more »

A Canada Pension Plan Statement of Contributions with a 100 dollar banknote and dollar coins.
Retirement

Want the Maximum $1,346.60 CPP? Here’s the Income You Need

Most CPP users receive the average pension but have ways to boost their retirement income.

Read more »

Man in fedora smiles into camera
Retirement

The Case for Waiting Until Age 70 to Take CPP

You can get more CPP by delaying benefits until age 70. You can also supplement your benefits by holding ETFs…

Read more »

a man relaxes with his feet on a pile of books
Dividend Stocks

CPP Pensioners: Watch for These Important Updates

The CPP is an excellent tool for retirees, but be sure to stay on top of important updates like these.

Read more »

TFSA (Tax free savings account) acronym on wooden cubes on the background of stacks of coins
Retirement

The Average TFSA at Age 50: Where Do You Stack Up?

The TFSA is a great way to save for retirement and during it, but what if you're still short of…

Read more »