Want the maximum CPP benefit of $1,937.73? Here is the salary you need

Written by Aditya Raghunath at The Motley Fool Canada

Did you know that the CPP, or Canada Pension Plan, could pay retirees up to $1,937 a month in 2024? According to the website Canada.ca, the maximum monthly CPP payment for a 65-year-old starting retirement in 2024 is $1,364.60. However, you can earn an extra 8.4% for each year your pension is delayed. So if a 65-year-old delays retirement by five years, the maximum CPP benefit must increase by 42% to $1,937.73.

The CPP payment depends on factors such as your earnings during employment, contributions to your retirement account, and the number of years of contributions. Generally, CPP premiums are taken from your monthly pay check up to a certain amount known as maximum retirement earnings.

What is the maximum income limit for retirement in 2024?

The maximum retirement income threshold increases each year and stands at $68,500 in 2024, up from $66,600 in 2023 and $47,200 in 2010. This means that CPP premiums are reduced up to this threshold and not beyond it. So anyone earning under $68,500 a year pays lower premiums and will therefore receive a lower CPP amount in retirement.

The employee and employer CPP contribution rate has increased to 5.95% in 2024, up from 4.95% in 2010. For self-employed individuals, the maximum contribution rate will double to 11.9%. So in 2024, the maximum CPP contribution by an employed individual is $3,867.50 (5% of $68,500).

It is clear that individuals must earn above (or equal to) the maximum pensionable income threshold to be eligible for the maximum CPP payment. However, even if you earn the maximum CPP amount, it may not be enough to lead a comfortable life in retirement.

Top up your CPP payment with dividend stocks

A low-cost way to supplement CPP is to hold a basket of blue-chip dividend growth stocks that thrive through business cycles. Ideally, a dividend-paying company should be positioned to grow its earnings and cash flow each year, which should translate into continued dividend growth and capital gains.

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One such TSX dividend stock is Royal Bank of Canada (TSX:RY). Over the past 20 years, RBC stock has returned 990% to shareholders after adjusting for dividends. Despite its big market gains, RBC stock offers you a tasty dividend yield of 3.8%, given its annual dividend of $5.68 per share.

A payout ratio of less than 60% provides RBC with the flexibility to strengthen its balance sheet and further increase dividends. Since July 2004, Royal Bank of Canada has increased dividends by 8.7% annually, which is remarkable for a cyclical bank stock.

Unlike its peers south of the border, RBC maintained its dividends even during the financial meltdown in 2008-09. Since Canadian banks are relatively more conservative, they are better equipped to handle economic downturns with relative ease.

Priced at 13 times forward earnings, RBC stock is quite cheap, given that interest rates should move lower in the next 12 months, improving the credit environment and profit margins for TSX banks.

RBC is just one example of a quality TSX dividend stock. You should identify other fundamentally strong companies and further diversify your portfolio.

The post Want the maximum CPP benefit of $1,937.73? Here’s the salary you need appeared first on The Motley Fool Canada.

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Fool Contributor Aditya Raghunath has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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