How to Earn $2,362 Per Year Tax-Free and Optimize Your Canada Pension Plan (CPP) Payout

For many Canadians, planning for retirement means finding ways to supplement Canada Pension Plan (CPP) benefits with additional income streams while minimizing taxes. One of the best ways to do this is by leveraging Tax-Free Savings Accounts (TFSA) to generate tax-free income, while also using smart strategies to maximize CPP payouts.

With careful planning, retirees can earn at least $2,362 per year tax-free through investments while ensuring they receive the highest possible CPP benefits. Here’s how to achieve this financial goal and enjoy a more comfortable retirement.

How to Earn $2,362 Per Year in Tax-Free Income

1. Use a TFSA for Tax-Free Investment Income

The Tax-Free Savings Account (TFSA) allows Canadians to earn tax-free investment income through dividends, interest, and capital gains.

The beauty of the TFSA is that withdrawals are not taxed, meaning it won’t affect eligibility for income-tested benefits like Old Age Security (OAS) or the Guaranteed Income Supplement (GIS).

2. Invest in Dividend-Paying Stocks or ETFs

To generate $2,362 in annual tax-free income, you need to invest in assets that provide consistent returns. Here’s how:

• Maximize TFSA Contributions – As of 2025, the TFSA contribution limit is $7,000 per year, with a cumulative limit of $103,500 for those eligible since 2009.
• Invest in High-Yield Dividend Stocks – If you invest $59,050 in dividend stocks with a 4% annual yield, it will generate approximately $2,362 per year tax-free.
• Consider Conservative Investments – If you prefer lower-risk investments, dividend ETFs or high-interest savings accounts inside a TFSA can also provide steady tax-free income.

3. Keep All Growth Within Your TFSA

Unlike Registered Retirement Savings Plans (RRSPs), where withdrawals are taxed, TFSA withdrawals are entirely tax-free. This makes the TFSA an ideal account for retirement income. By reinvesting dividends, your capital can continue to grow without any tax burden.

How to Maximize Your CPP Payout

The Canada Pension Plan (CPP) provides retirement income, but how much you receive depends on your work history and when you start claiming benefits. The key to maximizing your CPP payout is knowing when to start collecting and making strategic contributions.

1. Delay CPP to Get Higher Payments

• If you take CPP at age 60, your benefits will be reduced by 36%.
• If you delay until age 70, your benefits will increase by 42%.

For every month you delay past age 65, your CPP increases by 0.7%—or 8.4% per year. Waiting until age 70 means receiving the maximum possible benefit.

2. Contribute More During Your Highest-Earning Years

CPP benefits are based on your contributions and earnings history. In 2025, the Year’s Maximum Pensionable Earnings (YMPE) is $81,200.

• Contribute the maximum amount each year to increase your future payout.
• Avoid low-earning years if possible, as they reduce your average pensionable earnings.

If you can work a few extra years at a higher salary, you’ll replace lower-earning years in your CPP calculation, boosting your monthly pension.

3. Keep Contributing After Age 65

If you continue working after age 65, you can still contribute to CPP to receive Post-Retirement Benefits (PRB), which increase your overall payout. This strategy can be beneficial for those who want extra income in later years.

• You can choose to keep contributing to CPP even if you start receiving payments.
• Every additional contribution increases your lifetime benefits.

How to Combine CPP and TFSA Income for a Secure Retirement

By combining TFSA tax-free income with a maximized CPP payout, you can create a strong financial foundation for retirement.

Example of Retirement Income Strategy (Annually)

• CPP Income (age 70, maximum payout) → $20,000
• TFSA Dividend Income (4% yield, $59,050 investment) → $2,362 (tax-free)
• OAS (if eligible at full age) → $8,000
• Additional Investments or Pensions → Varies by individual

This approach provides a steady stream of tax-efficient income while keeping government benefits intact.

Key Takeaways: Steps to Secure Your Retirement

• Invest in a TFSA to generate tax-free income.
• Choose high-yield dividend stocks or ETFs for steady returns.
• Delay CPP payments to receive a higher monthly payout.
• Continue contributing to CPP if working past 65 for additional benefits.
• Use tax-efficient strategies to maximize income while minimizing taxes.

By following these steps, you can earn tax-free income while ensuring the highest possible CPP benefits, helping you enjoy a financially secure retirement.

This article has been carefully fact-checked by our editorial team to ensure accuracy and eliminate any misleading information. We are committed to maintaining the highest standards of integrity in our content.