How CPP and Social Security Integrate

by | Sep 24, 2018

If you’ve worked in both the USA and Canada, you have likely contributed to both the USA’s Social Security program and the Canada Pension Plan (CPP). How will CPP benefits impact your Social Security benefits? How will your US residency impact your CPP and Old Age Security (OAS) benefits? Do these things even speak to each other?

Luckily for you, in 1984 the US and Canada came to an agreement called the “Totalization Agreement.” This was created with the intention of protecting the benefits of people who have contributed to government pension plans on both sides of the 49th parallel.

Contributions While You’re Working

If your work is covered by the retirement benefits programs of both the US and Canada, this agreement allows you to contribute to just one of those programs. This is key, as prior to the agreement you would have contributed to both. This might come into play if you’re a US citizen who has been sent by your US employer to work with a Canadian affiliate (or vice versa) – but note that this exception is in place for a period of only five years.

If you’re self-employed, you will contribute only to the pension plan of the country where you live.

Eligibility for Retirement Benefits

If you have contributed in both countries, you may be eligible for benefits in one or both countries. If you don’t meet the basic requirements from one country, you may be able to qualify by applying your “credits” earned in another country.

U.S. Social Security

In order to qualify for retirement benefits through USA’s Social Security system, you are required to have earned a specific number of credits, based on your age and the program. You earn credits based on how much money you make and pay Social Security contributions on. You can earn a maximum of four credits each year.

Retirement benefits are paid when you have 40 credits, or 10 years of work if you have earned the maximum number of credits per year. Your age matters only in respect to when you are considered to have reached “Full Retirement Age” (FRA). If you were born between 1943 and 1954, your full retirement age is 66. This age increases up to age 67 for those born after 1954. “Normal Retirement Age” (NRA) is considered to be age 65.

To be eligible to have your Canadian contributions counted towards your US Social Security, you must have earned at least six credits (1.5 years of full credits) under the US system. If you already have sufficient credits under the US system, your Canadian credits cannot be counted.

Canada Pension Plan

To qualify for CPP retirement benefits, you must have made at least one valid contribution to the CPP. Normal retirement age is also considered to be age 65 for CPP, but you can apply for it as early as age 60 (with a reduction to your benefit) and as late as age 70 (with increases to your benefit).

Since Canada does not require more than one contribution to qualify for CPP, US Social Security credits are not necessary for determining eligibility.

Calculating Benefits

If your US Social Security eligibility comes as a result of counting both US and Canadian credits, the initial benefit is determined on your US earnings, as if your entire career had been completed under the US system. From there, a reduction may be calculated, depending on the number of US credits you have. The more US credits, the smaller the reduction. The fewer US credits, the larger the reduction.

If you receive both Social Security and Canada Pension Plan, your Social Security benefits will be reduced, based on a US law called the Windfall Elimination Provision.

Canada’s Old Age Security (OAS) does not impact your US Social Security benefits.

What to do now?

If you are not currently ready to apply for benefits from either country, you do not need to take any action. Both countries share information regarding your eligibility, so when you advise them of your credits in each country, they will share information directly.

Julia Chung

Julia Chung

Co-Founder, Sr. Financial Planner at Spring Financial Planning
With twenty years' experience in the financial services industry, education in personal and corporate finance, business and family law, cross border planning, family dynamics, insurance, risk management, operations management, and strategy, Julia is a powerhouse financial planner committed to simplifying complex ideas into concrete, practical application.
Julia Chung

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