This week, let’s talk about what happens to your CPP contributions when you leave Canada.
Some assumptions up front:
1) You’re moving to the US
2) CPP and QPP are interchangeable in this context
3) You’ve made at least 1 contribution to CPP through your job
Everyone in Canada who is an employee, contributes to the Canada Pension Plan (CPP). The contributions build up over time and provide a secure and inflation-protected monthly payout during retirement.
When you leave Canada, you don’t lose that money. Payments from CPP will be made to you and are calculated based on how much you contributed, your years working in Canada and the Average Pensionable earnings during your time here. We’re not going to get any deeper on this today, just understand that if you made at least 1 CPP contribution while working, you will get SOMETHING in retirement.
The US has a similar retirement system called Social Security. It too collects contributions from US employees to fund payments during your retirement.
Unlike with CPP, the US Social Security ONLY pays to people who have reached 40 credits under their work credit system. You can only earn a maximum of 4 credits in any year so for simplicity’s sake, let’s say you have to have worked for 10 years in order to collect US Social Security benefits in retirement.
But what if you come back to Canada and haven’t reached your 40 credits with US Social Security? Have you lost that money altogether? The short answer is not likely.
The long answer? Well, this is where we talk about Totalization.
Canada and the US are close. You aren’t the only person who has left one country to live and work in the other. With that in mind, many years ago Canada and the US figured out a way to allow this free movement of workers while helping them keep access to CPP or Social Security.
The US will recognize time spent contributing while in Canada and apply credits for Canadian work to the 40 work credits you need to hit in order to get access to US Social Security.
One caveat to this, you need at least 6 work credits in the US system to do this. That’s about 1.5 years of work so make sure you’re there for at least that time in order to be eligible. Combining the US credits with Canadian credits to get to the 40 number will allow you to have access to your partial US Social Security based upon your contributions.
So what happens when it comes time to get paid in retirement? Do you get both CPP and Social Security?
Yes you do! Of course it’s your proper amount and based upon the payment rules of each country. The US also applies their Windfall Elimination Provision to CPP payments and MAY reduce your Social Security payments if you get too much from CPP. To keep it simple, don’t expect to get the maximum pension from both CPP and Social Security. Of note, Old Age Security payments in Canada ARE NOT covered under the Windfall Provision!
If you want to go a little deeper on the WEP, Andrea Thompson has a great post over at her Modern Cents blog
I’m ready to apply to get my payments. How do I do this?
Because of the close relationship, you don’t need to deal with the US and Canada individually. In both countries you can meet with an administrator in one country that will help you complete the application for both CPP and Social Security and confirm if you qualify under the Totalization Agreement.
Once your application is approved, you will get your Social Security from the US Treasury Department and your Canada Pension from the CPP Board each month. Both programs are well managed and protect you from inflation but also provide steady income for your entire life.
This was a very high level overview of CPP, Social Security and the Totalization Agreement between the two retirement systems. It is NOT intended to cover everything you will need to know about CPP and Social Security.
If you have specific question for your own situation, you can book a consultation with me here.
