How to Boost Your CPP Without Increasing Your Taxable Income

Times are changing, and so are people’s retirement needs. Nowadays, it is difficult to run a house on one person’s salary. You don’t know what the economy will be like 30 years from now. If you’re in your mid-30s and the Canada Pension Plan (CPP) is all you have in the name of retirement planning, it’s time to start before it’s too late.

How to increase your CPP?

The Canada Revenue Agency (CRA) started the CPP enhancement plan in 2019 to give you 33% of your average salary before retirement as a pension. And this 33% if you qualify for the maximum CPP payment. That can’t be done. You must make a maximum CPP contribution for 40 years to get a maximum CPP payment. And you have already made six to eight years of basic CPP contributions. You can’t change the past, but you can improve your future.

In your mid-30s, you can make the maximum CPP contribution ($3,754 for 2023). You may have room to make more contributions after paying your daily expenses and other short-term investments. So how about contributing another $3,700 to a Tax-Free Savings Account (TFSA) passive income? That’s only $312 per month.

With 30 years in your hand, you can have a large retirement pool to increase your CPP.

To do some basic math, if you invested $3,700/year for the next 30 years, you would have invested $111,000. If you earn an average return of 9%, your $111,000 will become almost $545,000 in 30 years. Considering its 5% yield, $545,000 could get you $27,250/year in TFSA passive income. And because it’s a TFSA withdrawal, this income won’t add to your taxable income.

How to build a half million TFSA retirement pool?

To build a TFSA retirement pool of over half a million with a $300 monthly investment, you can invest in some growth stocks that will provide 20-30% annual returns. Descartes system and Constellation Software some growth stocks generate 20% average annual returns. But invest when they trade near their 52-week lows to more than double your money in five years.

Don’t forget to diversify your portfolio. Instead of going all growth stocks, create a comfortable asset allocation ratio; maybe 40-50% in growth stocks, 30-40% in dividend stocks, and a small portion of 8-10% for high-risk growth and dividend stocks.

For example, say you invest $5,000 each in Descartes and Constellation Software, and it doubles your investment to $20,000 in five years. You can balance this portfolio by selling some growth stocks and investing in dividend stocks to maintain your asset balance.

Two dividend stocks to build passive income in TFSA

You may consider investing Enbridge (TSX:ENB) stock, a favorite of dividend enthusiasts. 67 years of dividend payout consistency makes it a top choice for retirement stocks. Enbridge’s business model is to earn toll money for its oil and gas pipelines and give away 60-70% of its distributable cash flow (DCF) as dividends. The remaining 30% DCF gives Enbridge room to build a reserve for difficult times when the payout exceeds 80% of DCF. These reserves can be used to continue paying and growing dividends.

Enbridge is accelerating capital spending on gas pipelines to tap North American liquefied natural gas exports to Europe. Thus, it slowed down the dividend growth rate to 3% from 10% before the pandemic. If these gas pipelines become operational, it could accelerate dividend growth.

CT REIT (TSX:CRT.UN) is a good option to diversify your passive income source in other unrelated sectors. This is the REIT created by the retailer Canadian Tire to develop and manage its stores across the country. As the parent is the tenant, rental income continues to flow and occupancy remains above 91%.

Currently, property prices are weak because high interest rates make mortgages expensive. Therefore, the stock price of all REITs fell. Now is a good time for long-term investors to buy fundamentally strong REITs and lock in a 6% yield. CT REIT is one of the few REITs that consistently increases its dividend, currently at 3.2%.