How Your Canada Pension Plan (CPP) Impacts Your U.S. Social Security Benefit

Retirement planning is hard enough if you have always lived and worked in the United States.  If you have worked in both Canada and the U.S., retirement planning may seem impossible.  You have to deal with a moving exchange rate, different tax codes, and enough retirement planning acronyms to make you crazy (IRA, RRSP, TFSA, RRIF, etc.) Also, if social security planning isn’t difficult enough, now you need to deal with a CPP (another acronym).   The CPP can negatively (or positively) impact your social security benefit.  Confused yet?  This article will help you determine if your U.S. social security benefit will be impacted by working and earning a CPP in Canada.  

The Good (and Bad) of the Totalization Agreement between the U.S. and Canada

In 1984, the U.S. and Canada agreed to a Totalization Agreement.  The order was to help “protect” social security benefits for people that have worked in both the U.S. and Canada.  Yet, many people who are affected by this agreement feel it robs them of some of their social security, not protects it.

The Totalization Agreement allows U.S. workers to combine work experience in the U.S. and Canada to qualify for social security. This allows people to qualify for social security, even without having enough work credits.  In the U.S. you need 10 years of work experience to qualify for social security.  So, let’s say that you worked for 6 years in the U.S., and then took a job and moved to Canada for 20 years before retiring.  Under normal social security rules, this would mean that you would miss out completely on social security.  However, the Totalization Agreement allows you to use your Canadian work experience to qualify for social security when you retire.  Seems like this is a win-win for retirees until you find out the ugly side of the agreement.  

Unfortunately, the agreement isn’t good for everyone.  The Totalization Agreement is great for those who have worked for less than ten years in the U.S.  However, it is not as friendly if you actually qualify for your own social security benefit.  The agreement contains a Windfall Elimination Provision (WEP), which reduces your U.S. social security benefit if you have worked in a job in which you didn’t pay into social security.  This includes working in Canada in which you earned a CPP  and didn’t pay into social security.  

How much will your social security be impacted by WEP?

The amount your social security benefit that is reduced by WEP depends on two factors:  How long you worked in the U.S. and the size of the Canadian pension that you earned.  

The longer that you worked in the U.S. and paid into social security, the less that WEP will negatively impact your benefit.  If you have worked in the U.S. for over 30 years, you would have no reduction in your U.S. social security benefit.  If you have less than 20 years of work experience in the U.S., your social security can be reduced by as much as 60%.  This may seem extreme, but there is a limit to how much your benefit can be reduced.  

Your social security benefit can only be reduced by the lesser of 50% of your CPP (plus any other Canadian pension you may have earned) or an annual limit which is set by the government each year.  In 2019, the most that your social security can be reduced by WEP is CDN $463 per month.  This applies to someone with less than 20 years of work experience in the U.S.  So, if your only Canadian pension is the CPP and the CPP is $500, the most that your social security can be reduced is $250 per month.  OAS is not included in the WEP calculation.  

Why does WEP reduce social security benefits?

Social security is a progressive system in which workers who have paid less into social security actually receive a higher, relative to earnings history, benefit compared to a higher income worker. Essentially, the social security system is set-up to give a little bonus to lower-income workers and assumes that people who have paid less into social security have earned less over their life. This assumption though isn’t necessarily correct if a person has earned a lot over his lifetime but has done so in different jurisdictions. Therefore, WEP was created to eliminate this extra social security benefit that is given to lower-income workers. I’m not saying this is right, but social security is riddled with these odd adjustments.

When does WEP impact your social security benefit?

Your social security is not lowered by WEP until you actually turn on your CPP or other Canadian pensions. So, if you turn on your U.S. social security at age 62 but delay turning on your CPP until later, you would receive your full age 62 benefit until you turn on CPP. This is where social security and CPP planning is very important. For example, does it make sense to turn on social security at age 62 and delay CPP and other Canadian pensions until later? This allows you to collect an unreduced social security benefit for up to 8 years, before getting the WEP reduction. Or, does it make sense to turn on CPP immediately at age 60? Your CPP benefit will be lower and therefore will have less impact on your social security benefit. And you thought just planning for U.S. social security was confusing! I wrote this article about social security strategies when you have a CPP.  

If you would like, the social security administration has a WEP benefit calculator on its website, so that you can calculate your after WEP social security benefit.  WEP Social Security Calculator

If you have worked in both the U.S. and Canada, developing a retirement strategy that reduces WEP is crucial. However, most financial advisors have no idea how social security, CPP, and WEP work together. Are you ready to work with a financial advisor that truly understands your cross-border retirement needs. If so, schedule a complimentary meeting below.

23 comments

  1. I have 14 US social security credits and 24 years of contribution (or 96 quarters) to CPP in Canada. That is a total of 110 credits or 27.5 years. I live in the US. If I work 2.5 more years and earn 10 more social security credits and use the Totalization agreement to reach a combined 30 years or 120 quarters, will I be able to avoid the WEP reduction? I am collecting a small Teachers pension from Canada and CPP already and very concerned about WEP.

    1. Hi Ben,

      Thanks for the question. Unfortunately, you would need to have worked in the U.S. for 30 years in order to avoid WEP completely. The U.S. and Canada Agreement does not help with WEP, it just makes it easier to qualify for social security. The U.S. does not care how long you worked in Canada, rather just how many years you have worked in the U.S.
      If you have less than 20 years work experience here in the U.S., you will potentially face this highest WEP reduction.
      Hopefully this helps, but let me know if you have any other questions.

  2. Bryan, Great article. You write ….So, if your only Canadian pension is the CPP and the CPP is $500, the most that your social security can be reduced is $250 per month. OAS is not included in the WEP calculation. ….
    Question : Is currency exchange rate from $CDN to U$ is used in these calculations?
    If it is not, how then currencies from other countries like Norway, Great Britain are treated?

    1. Hi Janus, thanks for the question. Yes, the currency exchange rate is used in this calculation. The most that you can lose is 1/2 of your CPP after it is converted to USD. If your CPP is C$500 you would receive about $380 USD today. The max WEP reduction would be $190 USD.

      Hopefully this helps and let me know if you have any other questions.

      Thanks,
      Bryan

  3. what happens if you have say full 30 years of work record in the US therefore no reduction. + 3k annually from CPP for working in Canada during college and highschool and another 2K-3K or so GBP from UK for working there 2 years with buyup into their NI program.

    Due to the 30+ years with US, would there be no reduction across all 3 pension programs via WEP or Totality?

    1. Hi David,

      Yes, as long as you have over 30 years of work here in the U.S., earning over the Substantial Earnings limit, you should not have a WEP reduction on your social security benefit. It does not matter how many foreign pensions that you may have.

      Thanks,
      Bryan

  4. Bryan, if I draw canadian pensions now 2020 and do not draw US soc sec until 2028 when I have 30 years work in US, does WEP still come into play?

  5. Currently receiving $900/month from Social Security and $600/month in CPP. Wife’s PIA is $2,223 from Social Security and I am trying to figure out if I will be eligible for a spousal add-on of roughly $200 when she files or if it will be reduced.

    1. Hi Henry,

      I don’t know your situation well enough to tell you for sure, but it does appear that you will get a bump when your wife files for social security. It depends on when you started social security. You only get 1/2 of your wife’s benefit if you started your own benefit at your Full Retirement Age. If you started early, you may not get the full 1/2 of her benefit and won’t get as high of a jump.

      Thanks,
      Bryan

  6. I am presently receiving $500.00/month for my CPP , I now realize as a US citizen I can apply for my SS pension. I have 18 credits in the USA and I understand they will then look for the remaining credits from my CPP contributions. If they use my CPP credits will that reduce my monthly CPP payment or will it just be used to calculate my Social Security payment and then the WEP provision will be used with no reduction in my monthly CPP?

    1. Hi Len,

      Yes, using your CPP contributions will help you qualify for social security. Once social security starts, you will have a reduction as a result of WEP. In your case, you will probably have a $250 monthly reduction in social security because of WEP. Your CPP is not reduced.

      Thanks,
      Bryan

  7. I have 30 years of contributing to SS in the US and 5 years in Canada. Usually, 35 years are averaged to determine the SS benefit. Can my Canadian earnings offset these 5 zeros?

    1. Hi Tom,

      Thanks for the question. No, your Canadian earnings do not add to your social security at all. It simply will help you qualify for social security if you don’t have enough social security credits. In your case, because you already qualify for social security, your Canadian earnings will not help with your U.S. social security.

      Thanks,
      Bryan

  8. Mr. Haggard,

    Thank you for your article. I wonder if I could bother you with 2 questions please. I have 28 credit years of work under SS and am received full retirement benefits. My wife is receiving spousal benefits on my record until she turns 70 and will then go on her benefits. We both are entitled to very small QPP pensions. Once we start QPP benefits, I realize my SS benefits will be reduced by a small amount (probably $40 to $50) but will my wife’s benefits also be reduced and would we be able to figure out by how much?

    Secondly, when do I notify the Social Security office that we have started collecting QPP? Should we not wait until we receive a payment in the bank to show the converted amount in U.S. funds?

    Thanks in advance
    Andre

    1. Hi Andre,
      Yes, if your wife’s benefit is based on her own benefit, and she has a QPP, she will have a WEP reduction. The WEP reduction is based on her U.S. years worked and size of QPP. If she is just collecting a spousal benefit, she would not have a separate WEP reduction if your social security is being WEP’d.

      You should let social security know about your QPP benefit just before you receive your first payment. SS will collect additional information about your QPP and decide how much your social security benefit should be reduced. You don’t want to wait and get a big bill later.

      Thanks Andre, please let me know if you have any other questions.

      Bryan

  9. Thank you Mr. Haggard. As a follow up, if I can, my wife definitely has less than 20 years of SS work, so when she finally at age 70 starts receiving benefits on her own record she would be subject to WEP reduction, but would the caveat still exist that the reduction could not be more than 50% of the QPP benefit? Otherwise I am wondering if it would be better to just stay on spousal benefits forever?

    Thank you again

    Andre

  10. Hi Bryan, I came to the US in 1998 and have been working here since then until last year. Prior to coming here I was working in Canada and qualify for CPP. I am turning 70 in a few months and will start collecting both social security and CPP. Will WEP apply to me and reduce my social security ?
    Thanks for your time.

    1. Hi Srinivas,
      Thanks for the question. Yes, it appears that you only have about 20 or 21 years of work here in the U.S. If you have less than 30 years, and a CPP benefit, you are typically subject to a WEP reduction on your social security benefit. Let me know if you have any other questions.

      Thanks,
      Bryan

  11. Hi Bryan, thanks for your answer. It does not make sense to me that CPP earned prior to me ever coming to this country should now reduce my social security. I can see if I was already in the US working and then went for a while to Canada, but that is not my case.
    Thanks, Srinivas

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