CPP and SS optimization

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stewak2
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CPP and SS optimization

Post by stewak2 »

Interesting question re my sister in law:
US Citizen residing in Canada. Married to Canadian citizen 9 years older than her. 39 quarters of US SS work credits. Currently working in Canada and paying into CPP and will presumably do so for another 10-15 years.
Does it make sense for her to work on quarter in the US to get the full 40 quarters to independently qualify for SS ( and Medicare )?
My initial take is no.
She would qualify under totalization agreement for a small SS benefit and will receive CPP at some point. If she doesn't get the 1 additional quarter, there would be no windfall elimination provision and she would get the full SS benefit and the full CPP she earned.
If she did get the additional quarter, windfall elimination would apply, and SS benefit would be reduced.
However she would qualify for Medicare Part A and Part B at 65 and her husband as well ( at 74 ), which is not the case if claiming under totalization.
She was born after 1954, so cannot use a restricted benefit, but at her full retirement age (67, husband 76 ) her husband could collect 1/2 of her SS benefit. I am not sure though if this applies if she does not have the full 40 quarters and is relying on totalization for her SS claim?

What is the optimal strategy here?
nelsona
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Re: CPP and SS optimization

Post by nelsona »

I'll answer these as I find time (and answers).

1. Older spouses qualifying for premium-free Medicare when the younger spouse reaches 62 (and has the 40 quarters). So he would not have to wait until she was 65. he would get it at 71.
If the working spouse does not have 40 quarters, then either can "buy" Medicare when they reach 65, as long as they are (a) USC's or (b) GCs living in US for past 5 years. The premium runs from $230-460 approx. a month. Much more than she would possibly lose by working one quarter and being subject to WEP I'm pretty sure.

The most she will lose from SS is 1/2 her CPP which will not be much. 10-15 yrs of CP contribs late in career doesn't get you much CPP.

The earlier she takes CPP, the more years she will have it without being WEP'd. (I like to view WEP as cutting my CPP, not cutting my SS).

So, I would be trying to get that quarter. it opens up more possibilities later for mobility and I don't see

I think you may be over-estimating how much CPP she will get (and thus how much WEP loss she will suffer).

Full Disclosure: I am a proponent of taking CPP as early as possible (to benefit of WEP-free CPP), as well as SS (if not working in US at that time).

Little secret: SSA has determined the reduced/increased payouts for early/delayed taking of SS benefits such that in all cases one would actuarally get the same amount. So SSA figures that 3 people who take it at 62, 66, or 70 respectively, they will get the same amount if they die at the EXPECTED age. I did not know this until last week. Even more reason to take it early.
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nelsona
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Re: CPP and SS optimization

Post by nelsona »

She can probably estimate her CPP with her future work history.

She can definitely figure her SS on their website, adding that extra quarter ($1500) in some year, and then estimate her 39-quarter benefit as 95% of the 40-quarter amount. (39/40)**2= 95%
She will see that the WEP is not really going to be very big compared to the cost of medicare.

Do you have any ideas how she will get that quarter?
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nelsona
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Re: CPP and SS optimization

Post by nelsona »

Another point to consider on delaying or not.

many frame the question on whether they "need" the money or not. I rather look at it as "can I use the money".

A nine year age difference may not seem much at 40's or 50's but at at 6-'s and 70's it will be. let's not kid ourselves. A little bit more CPP or SS won't be much use to go visit him in the home.

take it when they can BOTH enjoy it.

I'm looking into totalization and the spousal benefit.
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nelsona
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Re: CPP and SS optimization

Post by nelsona »

it looks like yes, the spouse of one who qualifies for SS by totalization does indeed get the spousal benefit (1/2 of what is eventually determined after WEP). The spouse's benefit is NOT subject to a second WEP (ie. their CPP isn't looked at), but it is subject to early distribution penalty.

Remember when we talk of WEP we also include company pension income, not just CPP -- but never OAS.
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nelsona
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Re: CPP and SS optimization

Post by nelsona »

Addendum to my little secret:

Little secret: SSA has determined the reduced/increased payouts for early/delayed taking of SS benefits such that in all cases one would actuarally get the same amount. So SSA figures that 3 people who take it at 62, 66, or 70 respectively, they will get the same amount if they die at the EXPECTED age. I did not know this until last week. Even more reason to take it early.

What DOES impact final total SS payout is CONTRIBUTING to SS in the year between 62 and 70+, so someone who WORKS until 70+ or 66 and take SS when they finally retire will get more than the person who retires at 62 and immediately collects, but if living in Canada, one is no longer contribution to SS, so the original statement will be true.
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stewak2
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Re: CPP and SS optimization

Post by stewak2 »

Wow, lots of answers, thanks very much Nelson.
She lives in a border town, she could probably get the quarter credit fairly easily. The Medicare is really hard to figure the value of, since they live in Canada and are covered by OHIP. It would be additional options.
She can estimate her CPP pretty easily - but I forgot to mention she will have a workplace pension, too, although small ( joined late, etc ).
Again that should be fairly easy to estimate.
I am not sure how she can estimate her SS though..does the notice they send you include totalization? I don't see how it could since they don't know until you apply that you have Canadian earnings.
I think she'd need both numbers - SS with 40 quarters vs SS via totalization, and CPP+workplace pension, to figure out the best plan?
Presumably, SS with totalization is going to be a much bigger number than SS with 40 quarters ( only ).
nelsona
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Re: CPP and SS optimization

Post by nelsona »

Totalization doesn't change her SS, it merely makes her eligible for it. it doesn't matter how little or much she worked in Canada, or how much she made , as long as she contributed to CPP for a year or more.
Obviously, if she only worked 6 quarters, estimating her SS would be almost impossible.

But she can easily put in what she has so far, and for the purposes of estimating, add one quarter of work in some year (you need to look at the estimator, it is pretty straightforward, but don't believe it gives a number unless 40 quarters are achieved). that will accurately give her the "standalone" SS which she earned.
If she only works 39 quarters, the totalization kicks in, which means they take her earnings "as if " it was 40 quarters, and multiplies by actual#quarters/40

So lets say the estimator comes up with $1600 SS if she works that extra quarter. Then her totalization would be 39/40ths of that smaller amount, $1560. Again her earnings in Canada don't come into play to determine her SS. I use the factor (Q/40)**2

very likely her"39" quarter SS would be greater than her eventual "40+" SS because of WEP. But it will be FAR less if she has to pay medicare premium for both of them out of it.
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Bubba Gums
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Re: CPP and SS optimization

Post by Bubba Gums »

I recommend you download the SS program, anypia.

https://www.ssa.gov/OACT/anypia/description.html

https://www.ssa.gov/OACT/anypia/download.html

It allows you to calculate a primary insurance amount (PIA) based upon actual earnings and also permits calculation of a totalization benefit, a handy tool. It is not particularly user friendly, however.
MaggieA
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Re: CPP and SS optimization

Post by MaggieA »

I downloaded the anypia program. It gives you exact figures for totalization scenarios. If you're comfortable with running a standalone Windows program, it's pretty easy to figure out and it just makes no sense (in my mind) to fiddle with other estimation tools. This is the straight goods from SSA. I run it in VirtualBox on my Mac.
MaggieA
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Re: CPP and SS optimization

Post by MaggieA »

I agree with Nelson's statement 'very likely her "39" quarter SS would be greater than her eventual "40+" SS because of WEP. But it will be FAR less if she has to pay medicare premium for both of them out of it.' So in my mind the question is, how likely are they to want to move to the US in retirement? Because if they remain in Canada, they don't need to pay medicare premiums.
nelsona
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Re: CPP and SS optimization

Post by nelsona »

Its a mobility issue, in my mind. She going to outlive him. She will not have free Medicare to move back to US. Sorry to put it in blunt terms but there you are.
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