Do you want to boost your CPP benefits in 2024?
Depending on your age and whether you’ve started taking benefits yet, you may be able to do so. If you are under 70 and have not started taking benefits yet, then increasing your annual CPP pension amount is fairly straightforward. If you have been drawing CPP benefits for under 12 months, you can also increase your CPP pension amount. If you are 70 or older or have been receiving CPP benefits for more than 12 months, there is nothing you can do to increase your pre-tax amount. However, it might be possible to increase your after-tax amount by claiming more tax deductions. In this article, I will explore three ways you can increase your CPP Pension in 2024, in order of most to least viable.
Source: Getty Images
Method one (if you aren’t drawing CPP benefits yet)
The easiest way to boost your CPP pension is to simply delay taking benefits. Each year you go without taking CPP benefits increases your annual amount when you finally take them. For example, each year you delay past age 65 increases your annual CPP by 8.4%. Over the course of five years, you can increase your benefits by up to 42%! This method is pretty straightforward – you basically just have to wait. The only catch is that it probably won’t be viable if you have urgent healthcare needs or are unable to work for whatever reason.
Method two (if you started taking benefits less than 12 months ago)
There is one way to increase your CPP benefits if you’ve started receiving them already: reverse your decision to take them. Provided you first received benefits less than a year ago, you can reverse your decision to take benefits, stop receiving them, continue working, and keep growing your annual benefits. Just check the date of your first-ever CPP cheque to see if this option is available to you.
Method three (if you’re already drawing CPP benefits)
If you’ve been drawing CPP benefits for over a year, you cannot increase your pre-tax amount. You can, however, increase your after-tax amount by claiming more tax deductions. The more tax breaks you claim, the less the taxes you pay on each dollar of income. RRSP contributions are good tax breaks to claim, because they give you a tax-deferred environment in which to invest money, in addition to providing a tax break. Speaking of which, let’s talk about investing in an RRSP.
Investing to supplement your CPP benefits
Investing in an RRSP is a very good financial decision. Holding your assets in an RRSP gives you a tax break, a period of tax-free compounding, and the potential to withdraw your money at a lower tax rate in retirement. Dividend stocks are good assets to hold in RRSPs because they provide cash income that would otherwise be taxed.
Consider the Canadian National Railway (TSX:CNR) for example. It’s a Canadian railroad stock with a 2% dividend yield. If you held $100,000 worth of CN Rail stock in a taxable account, you’d get $2,000 in dividends. On that amount, you’d pay your marginal tax rate less the dividend tax credit. The dividend tax credit reduces dividend taxes quite a bit, but rarely reduces them to zero. So, holding CNR in an RRSP is a good idea.
I should clarify that the above does not mean you should hold nothing but CNR shares in your RRSP. It’s best to diversify your portfolio – the Motley Fool recommends 25 stocks at a minimum. CN Railway is a great company, with a 35% profit margin and respectable growth. But it’s not without risks. Holding it along with other stocks in your RRSP is the way to go.
