Did you know that your CPP benefits go up a little bit each year because of inflation?
Usually the increase is small enough on a month by month basis that you don’t really notice it. But if you take out your CPP cheques and look at them over a period of years, you’ll probably notice that they increase ever so slightly with each passing year.
The reason they’re increasing is because your CPP is adjusted ever so slightly for inflation. Each year — well, most years anyway — the price level increases. Your CPP payouts are adjusted to increase by the same amount, or close to it.
Which brings us to the topic of CPP for 2025. CPP inflation adjustments are calculated based on the previous year’s inflation; or more accurately, inflation in the November-October period of the prior two years.
We don’t have all the data for this period yet. The CPI increase for September will be published on October 15, and for October on November 15. We can’t be sure exactly how much CPP will increase in 2025, but we can come up with a rough estimate now.
In this article I will estimate how much your CPP is likely to increase in 2025 and share some thoughts on what to do if that still won’t be enough.
How much more will you get in 2025?
Based on the inflation data we have for the November 2023-October 2024 period so far, it looks likely that CPP will increase by about 3% in 2025. We can’t say for sure just yet, as the September and October data isn’t in yet. However, we know that the average CPI increase in the November-August period was 2.8% (that comes directly from the Bank of Canada website). With 10/12 (or 83.3%) of the months recorded, it’s very likely that CPI for the 12 months ended October will have increased around 3%. That points to a similar increase in CPP benefits for 2025.
That doesn’t mean your purchasing power will increase
While it’s nice to see the number on your CPP cheque going up, it doesn’t mean that your purchasing power will increase. To the contrary, if your purchasing power increases as a result of the inflation adjustment, it means that somebody at StatCan or the CPP Board made a calculation error! Because it comes for the CPI increase, the “increase” in your CPP next year will be a mirage. It’s better than if your CPP didn’t increase at all, though. And there are ways to make your income go further.
How to take home more of your income
A great way to protect your savings power is to invest your money in index funds or the types of blue-chip stocks that comprise such funds. By doing this, you can put more of your money to work for you — especially if you hold the stocks in a TFSA.
Take The Toronto-Dominion Bank (TSX:TD) for example. It’s a blue-chip Canadian bank stock that has a 4.7% dividend yield. That’s enough yield to provide you with thousands of dollars of tax-free passive income per year in a fully maxxed-out TFSA.
But the dividend isn’t the only thing TD has going for it. In its most recent quarter, the bank grew its revenue by 10%, which is pretty rapid growth for a big bank. Growth in its Canadian retail segment was especially impressive. Although TD’s profit growth didn’t match its revenue growth in the period, the long term trends appear healthy. At any rate, TD would be worth holding through an index fund that holds it at heavy weighting, such as the iShares S&P/TSX Capped Composite Index Fund.
