The Ultimate Retirement Game Plan with CPP Benefits and TFSA Returns: The amount of Canada Pension Plan (CPP) benefits you receive in retirement depends in part on the amount of contributions you made over the years. According to Mountain View Today, “the amount of your CPP benefit is based on your contributions during your working years.” To maximise this amount, make contributions for at least 39 years between the ages of 18 and 65, and contribute the maximum sum allowed for 39 years.
Based on maximum annual pensionable earnings of $66,600, the maximum CPP contribution for self-employed Canadians this year is $7,508.90. Each year, the Canada Revenue Agency (CRA) determines the utmost CPP contribution amount. Over the past decade, this quantity increased from $4,712.4 to $7,508.90, or 4.8% per year and 59% overall.
If you are an employee, you will pay half of $3,754.45 and your employer will pay the other half. If you earn less than the maximum annual pensionable earnings (and thus don’t make the maximum CPP contribution) or don’t contribute the full amount for at least 39 years, your CPP benefits will be less than the maximum amount.
The Ultimate Retirement Game Plan with CPP Benefits and TFSA Returns: You can delay CPP benefits in order to receive a larger payment
RBC indicates that the average age to begin receiving CPP benefits is 65. However, you may begin taking it as early as age 60 or as late as age 70. Retirees accept it early because they need the additional income or for health reasons (such as a short life expectancy due to a family history of illness).
RBC wrote, “If you begin receiving CPP benefits before age 65, your CPP is irrevocably reduced by 0.6% per month, including the month you turn 65 (a reduction of 7.2% per year)… If you begin receiving a CPP retirement pension after age 65, your monthly CPP payments will increase by 0.7% for each month you wait, up to a maximum increase of 42% by age 70. Your decision regarding when to begin receiving CPP would be heavily influenced by your health outlook, life expectancy, and financial needs.
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Maximising returns on your TFSA
Your CPP pension contributes to your retirement income. Your Tax-Free Savings Account (TFSA) could account for a larger portion of this income. Investing in a diversified basket of high-quality equities while you’re still employed could expose you to greater risk in pursuit of higher long-term returns.
The Ultimate Retirement Game Plan with CPP Benefits and TFSA Returns: Exemplary stock example
Brookfield Infrastructure Partners (TSX:BIP.UN) is a leading utility stock that you can buy and hold to help you reach financial independence. It owns and operates a growing, diversified global portfolio of high-quality infrastructure assets, such as rail operations, regulated or contracted utilities, energy infrastructure, data centres, and even a few semiconductor manufacturing foundries, which generate rising cash flows.
Not only does it offer a respectable cash distribution yield of 4.3%, but it also has a respectable total return potential. It aims for investment returns of 12-15%, which can contribute to its annual cash distribution growth target of 5-9%.
The history of cash distribution growth at Brookfield Infrastructure is exemplary. Since its separation from its parent company in 2008, the cash distribution has increased annually. For reference, its cash distribution growth rate over the past five years is 6.6%. According to analysts, the stock trades at a discount of approximately 17% at $46.37 per share.
