Drawing Social Security after retirement

[CdnAmerican]

My wife and I are USC's, living in Canada. I have about 14 years of work in the US (qualifying for Social Security & Medicare), and she has about 5 (qualifying for neither). But, we will both have probably another 25 years or so of work in Canada by the time we retire. In Canada, we pay into the CPP system but not SS, of course.

My understanding is that we can claim the Cdn work towards our Social Security after we retire, while also still claiming CPP. I know there is a Windfall Provision on SS, but it seems like this will allow for full CPP + 1/2 Social Security, which is pretty nice if it's true. It sounds like double dipping. Is my understanding about getting both CPP and SS accurate?

A second question: Is there any way tosubmit these Social Security credits from Canada as they accrue, or do we simply wait until retirement to submit these? (It sounds like the kind of thing that an SS worker could mess up, as it's a fairly uncommon occurrence.)

Thanks in advance!

[nelsona]

Why would you say that she has "qualified for neither". First off, by the totalization agreement, with her 5 years of SS, all she needs to have is 5 years of Cdn work and she qualifies for SS in her own right.

Moreover, as your spouse, she is entitled to SS to the tume of half of whatever you end up getting (not half of yours, but separate from what you get). This will probably be more than what she's earned hersewlf, but they will do the calsc at that time. You are correct that she won't get the free portion of medicare until she gets 40 TRUE credits of SS.

Yes, despite getting dinged for WEP, you will get SS and CPP, and WEP will only begin in the year you CLAIM both SS and CPP.

Work history will only be submitted to SSA (for your spouse, not you) at the time she reqests her own SS (if ever, based on the previous paragraph, she may just settle for yours, many spouses do). Your Cdn history never comes into play since you have the 40 quarters.

[stewak2]

I'm in the same boat, with 18 years employment in Canada, and 16 and counting in US. Is it correct that WEP only applies when actually collecting CPP, not merely having paid into it? In that case, it might make sense to take reduced SS at 62, which is about 70%, and delay CPP, which can be done till 70. Or just take full SS at 66 and delay CPP...etc

Obviously the math is different for everyone, but if it's correct that WEP only applies once one starts collecting the foreign pension, that's interesting from a planning perspective.

Also have to factor in spouse, I guess. WEP applies to her 1/2 benefits but I'd presume the WEP application depends on whether the primary applicant ( me ) is receivng a foreign pension?

[nelsona]

If one is applying for spousal benefits, WEP is only applied once: to the working spouses SS benefits. Whatever that yields, the spouse gets half of that amount, with no further WEP reductions.

The current thinking is to take CPP as early as possible and delay on SS, letting it grow, and at least getting some years of CPP that is not WEP'd.

[stewak2]

In the reverse case though, collecting SS while eligible for, but not collecting, CPP? Does WEP apply? It's pretty unclear, actually, from what I've read.

[nelsona]

I believe that WEP would only be calculated once you begin CPP, for the reason that currency conversion could be done at that moment in time (some have been bit by this, due to drop in C$ value, and WEP was determined when they began CPP with high C$ value).

But that is another reason why the thought is to take CPP first, especially if still in US, since it is definitely free and clear of WEP until you apply for SS.

[CdnAmerican]

Thanks nelsona as always! This is very good news, as long as both systems are still solvent (and we are still alive) when we are able to collect.

Good questions stewak2. I'm confused on one point; you say it's better to take CPP first, but it would seem like one would be better off to take SS first, with no WEP until CPP begins. If WEP is only calculated once, then it would seem best to start SS before any other pension? I think I have a piece wrong but I'm not sure which piece. (The calculators don't seem to help with this.) Can you tell me where I'm off base?

[stewak2]

CdnAmerican, I'm with you on that.
I will retire in Canada. SS is larger than CPP anyway, so if what Nelson says is correct, then it might make sense to take SS early with no WEP penalty since the reduction for taking it early might more or less equal the WEP penalty.
I think SS at 62 is about 70%. Say you take it at 62 and don't start CPP till 70 (when you'd get about 8% more ). So you'd have 5 extra years of SS ( since full retirement is 67 ) at about what you'd get at full retirement anyway, if you were collecting CPP. I think numbers will differ for everyone and you'll need to create a spreadsheet or write some code to simulate it, both taking CPP early and taking SS early. In my case my spouse is eligible for half my SS, but not till she reaches full retirement age (67) when I'll be 71. So you'd have to include that in your analysis. Not to mention exchange rates!

The more I think about it, I think Nelson has to be right, since WEP is based on your foreign pension amount, and how would SS know that ( or you for that matter ) until you start collecting it?

[nelsona]

Since we all agree that SS is more than CPP, would it not make sense then that the penalty will be greater (and the "bonus" greater) on the SS?

Therefore, taking CPP as early as one can, will result in a smaller penalty than taking SS as early as one can. And taking SS as late as one can will result in a bonus which is larger than the one you will get by delaying CPP.

that is, if you are saying you want WEP to apply at, say, 70, (by beginning tocollect the second pension at that date) you are better not touching the SS and letting it build, rather than letting the CPP build.

and your spouse can take her benefits without affecting your eventual SS, and then switch to spousal when you take yours. There may all\so be a apply and suspend strategy to look at as well.

Also, think of WEP as affecting your CPP, which in reality is what it is. Assune WEP is a 1/2 CPP penalty. By taking CPP early, not only are you collecting CPP early, the wep penalty when you take SS will be smaller, based on a smaller CPP. Before the Cdn govt changed the CPP penalty scheme, irt was a no brainer FOR EVERYONE to take CPP as early as possible -- that is why the feds had to change the scheme -- now it is not so clear-cut, but any calcs I've done say take CPP as absolutely early as possible, regardless of WEP, and then delay SS as long as possible to delay the start of WEP.

[CdnAmerican]

OK, now the SS first strategy makes more sense. The idea is to make CPP, paradoxically, as small as possible, such that the WEP penalty is also smaller. The obvious downside is that CPP is, well, smaller, but since SS is larger, then waiting on it so that it accrues more greatly makes some sense. It also, of course, depends partially on one's financial viability at that point (e.g., are you still working, do you require the pension to survive).

The exchange rate is also an important piece that is a real crapshoot. If, say, the C$ collapsed to less than half its value after the WEP was applied, you could wind up with less than if you had no SS to start with! But you could also win out really well if it goes the other way.

In any event, it seems that this is actually quite generous by the US govt, if they are applying work years from both countries. Even with the WEP deduction, it seems like a bonus.

My wife and I are both in our 40s, so this is all a looong way off, but the take-home message for me is that a) I need to stay on top of changes to the payment scheme, to see what the best method is in 15 years or so, and b) a lot of number-crunching in my 60s seems very wise.

I was not aware that my wife could get half of my SS benefit, regardless of her work history. That is also good news.

Thanks for the discussion! Complex stuff ..

[nelsona]

I'm not quite sure about the generosity. You don't get much SS if you don't work 40 quarters. You get a greatly reduced amount.

And, to be clear, if you are getting SS based on totalization (ie. 6-39 quarters plus Cdn work history), WEP is not applied at all. It's only applied to those with 40 quarters or more. Then your CDn work history actually penalizes you.

[CdnAmerican]

Yes, it seems like there is a warped calculus going on there. My wife would probably be better off NOT working to get up to 40 quarters, whether she draws SS based on Cdn + US work history, or just takes half of my benefit. I think the fact, though, that she can collect pretty well based on Cdn credits which can then be used in both countries (i.e., getting double benefits after only paying tax in one place) does seem generous. I can also see a scenario where a person could lose out from WEP, though.

[stewak2]

The spousal benefit for a foreign spouse who has never worked in US seems 'generous' to me. It's only applicable to a set of countries ( Canada is one ), otherwise you and your spouse have to have lived together for 5 years in the US. If your spouse is USC, then she qualifies automatically, unless you live in some place like North Korea or Somalia...

Another thing to consider ( for CdnAmerican ) is that after 30 years of US work, WEP doesn't apply. There is a sliding scale, after 22 years the WEP clawback starts to be reduced. So in my case, where I'm currently commuting to work in US, every year I work after 22 (which is age 62 for me ) increases my net benefit in multiple ways - SS is increased, CPP is increased, and WEP clawback is reduced.
By the way, 'work' is defined as 'substantial earnings' There is a sliding scale that increases with inflation every year - you need a real job not token US work even if you pay some SS with it.

[nelsona]

Stewak, in your sceanrio, it would probably still better to take CPP early (has it almost always has been).

While the changes to CPP penalties have made it slightly earlier, the break even point for taking it at 60 vs 65 is well into the 70's. That's is without even considering WEP.

Most Cdns, never mind those eligible for SS, are better off taking CPP early (if they are no longer working in canada, of course). It's not as obvious as it was up until 2-3 years ago (then, that was not opinion), but it is still better (in my opinion) with the changes.

Good reminder that substantial earnings in NOT the same as years of credit. a year of credits is earned with ~5K of wages in a year . A year of substantial earnings is ~22K per year.

For Cdns who accompanied therir spouses to a US job and was unable to work for the first few years, the only reason to work once eligible (from an Social benefit point of view) is to ensure that her US credits plus years in Cnada after age 18 add up to 20, so that lifetime OAS (at a reduced rate of course) is awarded, rather than a years worth.

[stewak2]

I see your point.
When I look at CPP options, I see that one can continue working while drawing CPP - so long as one continues to pay into it.
For a cross border commuter, working in US and paying SS, paying into CPP isn't an option...so I'm wondering if I could keep working in US, but start drawing CPP at 60. Work till full SS retirement to maximize SS, and perhaps past it to get past 22 yeas and begin to reduce WEP penalty ( which is lower anyway due to early, but longer, CPP ).
I realize I'm neglecting impact of taxation. If I continue to work I will pay a higher rate on CPP income since it will be taxed at my marginal rate ( in Canada, and since only 85% is taxable in US, the FTC would surely cover the US tax - possibly I could put a small portion in RRSP to eliminate any unuseable FTC).

Is it legal to work in US while drawing CPP in Canada?