The Canada Pension Plan (CPP) has seen some significant updates in recent years. Designed to provide Canadians with a more secure and reliable retirement income, the enhancements began rolling out in 2019 and are set to complete in 2025, but 2024 marks a notable year for changes. The key updates include increased contribution rates and the introduction of a second, higher earnings limit for contributions. The goal? To replace a larger portion of pre-retirement income, boosting retirement benefits for future generations of retirees. So let’s get into it.
The details
For higher-income earners, the new earnings limit means they can contribute more to CPP during their working years. In return, they’ll receive higher payouts in retirement, with the replacement rate rising from 25% of average work earnings to the new limit up to 33.3%.
While this adjustment aims to improve retirement security, it does come with a drawback: higher contributions. Both employees and employers will feel the pinch with increased deductions from paycheques. However, the trade-off is a more substantial income in retirement – a benefit that becomes increasingly important as traditional pensions fade and personal savings can be unpredictable.
A strategy
One strategy to maximize these enhanced CPP benefits is to delay starting the CPP retirement pension beyond the standard age of 65. For every month you delay, your benefits increase by 0.7%. This translates to a 42% boost if you wait until 70. This approach works particularly well if you’re in good health and anticipate a longer lifespan. The extra income can make a noticeable difference in your retirement lifestyle, especially when paired with savvy financial planning.
Speaking of planning, why stop at just relying on your CPP payments? Turning those enhanced benefits into even more cash flow through investing is a smart move. One excellent option is investing in stable, dividend-paying stocks like WSP Global (TSX:WSP). WSP is a global leader in engineering and design services, known for its consistent growth and strong financial results. It’s the kind of company that fits well into a portfolio focused on long-term stability and income.
Why WSP stock
Let’s dig into WSP’s recent performance. In the second quarter of 2024, the company reported revenues of $3.9 billion and net revenues of $3 billion, reflecting year-over-year growth of 8.5% and 9.1%, respectively. This impressive performance was driven by strong demand for its services and a strategic focus on operational efficiency. WSP’s adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) margin also improved, reaching 17.4%. This was up by 50 basis points compared to the previous year. What’s more, the company’s backlog grew to a record $14.7 billion, representing nearly 12 months of revenue and future growth.
The future looks just as promising. WSP has increased its financial outlook for the rest of 2024, citing continued momentum in market conditions and benefits from recent acquisitions. As governments worldwide ramp up investments in infrastructure, the company is well-positioned to capitalize on these opportunities. For investors, this means WSP could provide both steady capital appreciation and consistent dividend income.
Foolish takeaway
So how does this tie back to your CPP? By taking the extra cash flow from enhanced CPP benefits and allocating it to a stock like WSP, you’re effectively creating another income stream. Over time, the combination of dividends and potential stock price appreciation could significantly enhance your financial security in retirement. And because WSP is a relatively low-risk investment compared to more volatile sectors, it’s a great fit for retirees looking for stability.
Together, the recent updates to the CPP are a win for Canadians looking to secure a more comfortable retirement. While higher contributions may feel like a short-term sacrifice, the long-term benefits more than make up for it. And by combining those enhanced benefits with a strategic investment approach, like buying shares in WSP, you could amplify your retirement income, ensuring that your golden years are truly golden.
