Retirees should continue to keep an eye on announcements from the Canada Revenue Agency (CRA), especially the Canada Pension Plan (CPP). That’s because rules and benefits can change, and you don’t want to miss out on anything that could impact your retirement income.
Whether it’s tweaks to payment amounts, changes in eligibility, or new programs that could boost your benefits, staying informed ensures you’re getting every penny you’re entitled to. Plus, knowing the latest can help you plan your budget better and avoid any surprises that might throw a wrench in your financial plans. And this happened recently! Let’s go over the recent change of the CPP enhancement.
The enhancement
The recent CPP enhancement is like a little boost to your retirement savings plan, designed to give future retirees more financial security. Starting a few years ago, the CPP enhancement gradually increased the amount of contributions workers make to the CPP. This might sound like a bit of a pinch in your paycheque now. But the idea is that by contributing a bit more during your working years, you’ll receive larger CPP payments when you retire. Essentially, it’s a way to ensure that when you hang up your work boots, you’ve got a bit more padding in your retirement income.
What’s great about this enhancement is that it’s automatic. You don’t have to do anything special to take advantage of it. As long as you’re working and contributing to CPP, you’re already on board. The extra contributions are also matched by your employer, so you’re getting double the benefit! Over time, these enhancements are expected to increase the income replacement rate from 25% to 33% of your average lifetime earnings, thus giving future retirees a more comfortable cushion to rely on. So, while you might notice slightly higher deductions on your pay stub today, it’s all part of a plan to help ensure your golden years are just a little bit shinier.
Who it affects
Canadian retirees can take advantage of the CPP enhancement by simply enjoying the increased benefits that will roll in over time. If you’re still working, continuing to contribute to the CPP at the enhanced rates means that when you do retire, you’ll receive a bigger monthly payout. For those already retired, while you won’t benefit from the enhanced contributions directly, it’s great news if you’re working part-time or considering going back to work because those contributions can boost your future CPP payments. Essentially, the longer you stay in the workforce, even if it’s part-time, the more you can benefit from these enhancements.
For those approaching retirement, it might be worth considering delaying your CPP benefits for a few extra months or years. Each year you delay taking your CPP, your payments increase by a certain percentage. And with the enhancement in play, those increases can be even more significant. By delaying, you’re not only capitalizing on the enhancement. You’re also maximizing your monthly income when you do start receiving benefits.
Give it a boost!
Investors can use Hamilton Enhanced Multi-Sector Covered Call ETF (TSX:HDIV) exchange-traded fund (ETF) to give their CPP benefits a nice boost. Here, you’re turning that reliable government income into an opportunity for growth. HDIV, which focuses on high-dividend-paying Canadian stocks, offers a way to generate additional income through dividends.
By investing your CPP payments or other savings into HDIV, you can potentially increase your overall income with those regular dividend payouts. This means that instead of just relying on CPP for your monthly cash flow, you’re adding another stream of income. One that can help cover expenses or even fund some of those retirement dreams, like travel or hobbies.
What’s really appealing about HDIV is that it’s designed to provide a steady income. This aligns perfectly with the goal of a predictable retirement budget. Over time, if the markets perform well, the value of your HDIV investment could also grow, adding to your nest egg. So, while CPP provides a stable foundation, investing in something like HDIV allows you to leverage that stability to create more wealth. It’s a smart way to make your money work harder for you during retirement, ensuring that those golden years are not just comfortable but maybe a little more luxurious, too.
