For 2025, the maximum Canadian Pension Plan (CPP) contribution is $4,430 per year, and the maximum CPP payout is $17,196 per year. The possibility of getting the maximum payout is high if you contribute the maximum CPP for 40 years.
Let’s break down the calculation.
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Your salary determines your CPP contribution.
The Canada Revenue Agency (CRA) does not deduct CPP for the first $3,500 of income earned in a tax year.
Above $3,500, you contribute 5.95% of your income up to $71,300.
For income above $71,300 and up to $81,200, you contribute 4% of the salary.
On an income of $71,300, the maximum CPP contribution is $4,034.1, and $4,430 on an income of $81,200 and above. These numbers are for the 2025 tax year.
Suppose you worked for 45 years and made a maximum CPP contribution for at least 40 years, you are more likely to get the maximum CPP payout.
Factors that affect maximum CPP
While it is true that your CPP payouts depend on your contributions, there are ways to maximize them. Remember, the CRA takes the best 40 years of your CPP contribution.
Suppose you are unemployed at age 55 and have been facing difficulty getting a job for years. Consider claiming a CPP payout at age 60. Even though you take a 36% cut in your CPP payout if you claim it at age 60, you may be better off because the CRA will take the average of the best 40 years of your income. Unemployment or very low pay for five to six years can significantly reduce your average salary, based on which the CPP payout is calculated.
Another scenario could be that you had a phase where your income was very low for three years. However, you are now in the high-income bracket. Go back and calculate the years when you were in the high-income bracket. Suppose it is 37 years, you might want to delay your CPP payout by three years so the CRA can get a 40-year high-income salary as the base to calculate your CPP.
This could increase your chances of getting an above-average CPP payout.
An alternative to the maximum CPP payout
You can’t change the past. There could be instances where nothing you do can get you to earn the maximum CPP payout. Where the CPP invests your money is not in your control. You have to accept what the CRA gives.
If you are not in the high-income bracket or entered the workforce late, you still have an alternative. Instead of relying on CPP, you can build a personal pension pool where you have full control of where the money is invested and how much you can withdraw.
You can convert the Tax-Free Savings Account (TFSA) into an alternate pension pool that can bridge the gap between your CPP payout and the maximum CPP payout.
Two stocks for your TFSA pension
Depending on how many years you have for retirement and how much you can invest, you could choose your stocks. If you have 12-15 years to retire and are just starting to build a TFSA pension pool, consider investing in high-growth stocks to build a sizeable pool.
Topicus.com (TSXV:TOI) can help you generate significant wealth in 10 years. Topicus.com uses the power of compounding and growth through acquisitions to increase its enterprise value. The company is focused on acquiring mission-critical software companies in Europe. The growing dependence on digitization and artificial intelligence (AI) will increase the demand for such software, benefiting Topicus. Note that it makes all-cash deals, and that too when companies are available at the valuation it seeks. This helps it maintain a return on investment (ROI) in its portfolio of companies.
If you are nearing your retirement, consider high-yield dividend stocks that also grow their dividend by 3-5%. This can help your alternative CPP grow with inflation. A few stocks to consider are Enbridge, which gives a 6% yield and a 3% dividend growth. This growth rate is expected to improve to 5% from 2027 onwards. Another stock is Telus, which has a 7.6% yield and 3-8% dividend growth.
