The Canada Pension Plan (CPP) is a crucial part of retirement income for many Canadians. While most people know they’ll receive CPP when they retire, many don’t realize there are ways to increase their pension amount. Getting a larger CPP payment can make a big difference in your financial comfort during retirement.
In this blog post, I’ll share strategies to significantly boost your CPP pension.
Work Longer
Working longer can significantly increase your CPP pension. Your CPP is based on your best 39 years of earnings, so additional years of work can replace lower-earning years. Even working part-time after age 65 can boost your pension. Each extra year of work can add to your CPP benefits, especially if you’re earning more in your later years.
Delay Starting Your CPP
You can start receiving CPP as early as 60 or as late as 70. For each month you delay after 65, your pension increases by 0.7%. This means if you wait until 70, your pension will be 42% higher than if you started at 65. This strategy can significantly boost your monthly payments if you can afford to wait.
Maximize Your Contributions
Try to contribute the maximum amount to CPP each year. In 2024, the maximum pensionable earnings is $68,500. If you’re self-employed, make sure you’re paying both the employee and employer portions. Consistently contributing the maximum amount will result in a higher pension when you retire.
Consider the Child-Rearing Provision
If you took time off work to raise children under 7, the Child-Rearing Provision can help increase your CPP. This provision excludes periods of low or zero earnings while raising children from the calculation of your CPP benefits. This can result in a higher pension by not letting these low-earning years bring down your average.
Check Your CPP Statement of Contributions
Regularly review your CPP Statement of Contributions for accuracy. This statement shows your earnings and contributions history. If you find any errors, report them to Service Canada. Ensuring all your contributions are correctly recorded can prevent you from receiving a lower pension due to missing information.
Make Post-Retirement Contributions
You can make post-retirement contributions if you continue working while receiving CPP (between ages 60-70). These contributions will increase your CPP through the Post-Retirement Benefit, even if you already receive the maximum pension. Each year of contributions adds to your monthly payment, further boosting your retirement income.
Understand the Dropout Provision
The CPP calculation includes a general dropout provision that excludes 17% of your lowest earning months. This helps increase your average earnings used to calculate your pension. Understanding this can help you plan your work history to maximize your CPP benefits.
Consider CPP Pension Sharing
You can share your CPP pension with your spouse if you’re married or in a common-law relationship. This can be beneficial if one partner has a much higher pension than the other. Pension sharing can result in tax savings and potentially increase the overall household CPP income.
Maintain Consistent Employment
Try to maintain consistent employment throughout your working years. Gaps in employment can lower your average earnings and reduce your CPP pension. If you have periods of unemployment, consider ways to make up for these gaps, such as working longer or making higher contributions in other years.
Understand the CPP Enhancement
The CPP Enhancement, which started in 2019, will gradually increase CPP benefits for future retirees. If you’re still working, you’re likely contributing to this enhanced CPP. Understanding how this affects your future benefits can help you plan better for retirement and potentially increase your pension.
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