How to Earn $2,362 Per Year in Tax-Free Income and Maximize Your CPP Payout

Is your CPP payout not sufficient to meet your expenses? Here’s a tax-free way to boost your passive income and also adjust it for inflation.

Puja Tayal

Author Bio

Puja Tayal grew up in a small-business family where dinner conversations often centred on working capital and savings. Her early experiences with investing, particularly during the 2008 financial crisis, shaped her approach to understanding markets and evaluating investment opportunities. She began her career at a mutual fund company before moving into investor education and financial writing for asset and wealth management firms. Before joining The Motley Fool, Puja wrote for Market Realist, where she extensively covered the semiconductor industry. Her published work has also appeared in The Indian Express. Puja believes every stock has a story that can help investors understand its potential returns. She combines business analysis with different investing approaches to help investors make informed decisions and align their portfolios with their long-term financial goals. Outside of finance, Puja enjoys long drives, catching up with friends, watching superhero and science-fiction movies, and managing her family portfolio. She also has a keen interest in artificial intelligence and its potential to reshape the world.

Education

Bachelor's degree in Accounting and Finance, University of Mumbai (2007)
CFA Level I

Areas of Expertise

Qualitative company analysis, management strategy, risk assessment, long-term investing, portfolio diversification and rebalancing, dividend reinvestment, cyclical growth opportunities, compounding strategies, growth stocks, and dividend stocks.

Social Media Profiles

Favorite Investment Quote

"Risk comes from not knowing what you're doing." — Warren Buffett

Published February 26, 2025 11:45 am EST

You can never know with surety how much Canada Pension Plan (CPP) payout you will get. The average and maximum CPP amount can help you give a rough idea. For 2025, the average CPP payout at age 65 is $808.14, and the maximum is $1,433. If retiring at 65, you can also check out your Old Age Security (OAS) and Guaranteed Income Supplement (GIS) payouts. Even after adding up all the benefits, you might need some extra money to meet your standard of living as the government benefits can only take care of the necessities.

woman retiree on computer — Image source: Getty Images

How to maximize your CPP payout

Registered Retirement Savings Plan (RRSP) withdrawals will be added to your taxable income and could reduce your OAS and GIS benefits. The best way to maximize your CPP and other payouts is to take the Tax-Free Savings Account (TFSA) route. TFSA withdrawals are tax-free and have no impact on your income-based benefits.

Since you have already retired, you need a higher payout that can adjust to inflation on an immediate basis. A higher-yield dividend growth stock is a better option for you than a lower-yield dividend stock with a higher growth rate.

Let’s compare two stocks and see the outcome if you invest $20,000 in each.

Two income stocks to consider to maximize CPP payout

BCE (TSX: BCE) stock is currently in the doldrums as the restructuring is taking longer than expected. The company is bleeding profits. It has guided a 3% dip in revenue and a 13% dip in adjusted earnings per share for 2025, which means no dividend growth is in sight for at least three years.

The management is focused on reducing debt. The proceeds from the pending sale of certain businesses will be used to acquire new businesses and repay debt. So far, BCE has not cut dividends. Even if it does cut them, it will reinstate the dividend per share with a strong one-time growth later. The probability of a dividend cut is high as its payout ratio has been consistently above 100% for the last four years.

If you are willing to take this risk, you can lock in an 11.8% yield.

While BCE is a high-yield dividend stock, Canadian Tire (TSX: CTC.A) is a high-growth dividend stock with a 4.93% yield. Canadian Tire has a dividend payout ratio of 68% of the previous year’s net income, above its target of 30-40%, but such fluctuations are normal. During periods of strong economic growth, the retailer grows its dividends by double digits. In the last 20 years, the company has grown dividends at an average annual rate of 14%. However, I have assumed an 8% growth rate to keep the forecast conservative.

How to earn $2,362 per year in tax-free income

A $20,000 investment in each can buy you 592 shares of BCE at $34 per share and 139 shares of Canadian Tire at $144 per share.

Year	BCE Dividend per share (3% CAGR)	Dividend Income	Canadian Tire Dividend per share (8% CAGR)	Dividend Income
2025	$3.99	$2,346.12	$7.10	$986.9
2026	$3.99	$2,346.12	$7.67	$1,065.9
2027	$3.99	$2,346.12	$8.28	$1,151.1
2028	$4.11	$2,416.50	$8.94	$1,243.2
2029	$4.23	$2,489.00	$9.66	$1,342.7
2030	$4.36	$2,563.67	$10.43	$1,450.1
2031	$4.49	$2,640.58	$11.27	$1,566.1
2032	$4.63	$2,719.80	$12.17	$1,691.4
2033	$4.76	$2,801.39	$13.14	$1,826.7
2034	$4.91	$2,885.43	$14.19	$1,972.8
2035	$5.05	$2,971.99	$15.33	$2,130.6
2036	$5.21	$3,061.15	$16.55	$2,301.1
2037	$5.36	$3,152.99	$17.88	$2,485.2
2038	$5.52	$3,247.58	$19.31	$2,684.0
2039	$5.69	$3,345.01	$20.85	$2,898.7

Canadian Tire can give you $987 and BCE $2,346 per year in tax-free income. However, BCE has a risk of a 30-40% dividend cut if its earnings don’t improve next year. Even a 40% cut can give you $1,407 in annual dividend income, higher than Canadian Tire’s $1,066 expected dividend income next year.

Assuming you live for 15 years after age 65, your $20,000 investment can help you maximize your CPP payouts as per the table. If you are a risk-averse investor, Canadian Tire is a better alternative. If you are willing to take short-term risks, BCE can be rewarding in the long term.