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US Social Security Benefits for Canadians

If you have worked in the US, you will be eligible for Social Security Administration (SSA) as long as you have accumulated 40 SSA credits. You can earn up to 4 credits per year (also sometimes called quarters). Usually this means you need to have worked at least 10 years in the US to be eligible.

The required amount of earnings per year is set by the SSA according to inflation. In 2021, $1470 of earnings will give you one credit. Earning $5880 of earnings will give you the maximum of 4 credits per year. The following table shows the earnings required to get one credit:

Source: Quarter of Coverage

You can figure out your SSA pension and benefits using the Social Security Calculator

It sounds like you need to work at least 10 years in the US to see your benefits. Don’t despair, as Canadians, you will also be eligible for SSA pension as long as you have accumulated at least 6 credits (1.5 year). The US will consider the years you worked in Canada as if you worked in the US to make you eligible for their SSA benefits. The full details are here along with the actual US-Canada treaty details.

If you have contributed to the CPP/RRQ in a given year in Canada, it will be considered as 4 credits for the US system. This means you can complement the missing credits using your Canadian work history. You cannot double-dip however. You cannot accumulate more than 4 credits in a given year. For example, you will not be able to accumulate 8 credits in the year you moved between the US and Canada.

The following situations apply:

  1. You have less than 6 SSA credits: No benefits allowed.
  2. You have 6 or more SSA credits but less than 40: Pro-rated benefits allowed.
  3. You have 40 or more credits: Full benefits allowed, but potentially reduced through WEP. (see later).

You have less than 6 SSA credits

I am sorry. There is usually nothing for you. There are some exceptions such as disability benefits and spousal survivor benefits which this article does not cover.

You have 6 or more SSA credits but less than 40

You are eligible for the SSA benefits, but the benefits are adjusted. On the SSA side, the treaty writing goes:

a pro rata primary insurance amount shall be computed based on the ratio of the total periods of coverage completed under United States laws to the total periods of coverage completed under the laws of the two Contracting States. Benefits payable under United States laws on the basis of an earnings record where a pro rata primary insurance amount has been computed shall be paid on the basis of that pro rata primary insurance amount

This becomes interesting, because the SSA insurance payments in the US are not linear, there are bend-points that influence how much you receive depending on how much you have contributed.

The following picture explains the bend-points, at the beginning, you receive 90% of your SSA money back. It goes drastically down to 32%, and then 15%, until it finally adds 0 after a certain threshold.

Source: https://en.wikipedia.org/wiki/Primary_Insurance_Amount#/media/File:PIA.png

The Primary Insurance Amount (PIA) is your monthly pension benefits. Since you had to use Canadian SSA credits to be eligible, your PIA will be prorated adjusted. This means the more Canadian years you had to use, the less your PIA will be, and the less Canadian years you had to use, the greater your PIA will be.

As an example of someone who has worked 4 years in the US, and 20 years in Canada. This person has accumulated 16 SSA credits, not enough to be eligible. Fortunately, they can use 6 years of work from Canada to compute the missing 24 SSA credits making them eligible.

This person can figure out their PIA from the SSA website. Let’s say the result is $950. The value would be pro-rated back to 16/(16+24) * $950 = $380 per month.

Let’s expand this more. How much SSA benefits are you actually receiving per year that you work in the US?

You need to accumulate at least 6 US credits before you can use Canadian equivalent credits. So the first 1.5 year of work in the US is worth zero, you will get nothing back. After that, the next 8.5 years will allow you to increase the prorated amount you get from SSA until year 10, when you reach 40 credits, you are now eligible for the full SSA amount.. Remember, before the first bend point, the SSA is worth 90%, after the first bend point, it goes down to 32% and after the second bend point, the SSA goes to its final value of 15%.

https://www.ssa.gov/oact/COLA/piaformula.html

Only the top 35 years of indexed earnings is used for the graph. In other words, we use 420 months to compute the total indexed earnings. Obviously, the more months you have, the higher your benefit will be, but there are diminishing returns.

In 2021, the bend points are at 996$ and 6002$ monthly earnings which means that:

  • Monthly earnings amounts below 996$ are worth 90%
  • Monthly earnings amounts between 996 and 6002 are worth 35%
  • Monthly earnings amounts over 6002$ are worth 15%.

Putting these values back to yearly over 35 years give us the following:

  • Lifetime Indexed earnings below $418,320 are worth 90%
  • Lifetime Indexed earnings between $418,320 and $2,520,840 are worth 35%
  • Lifetime Indexed earnings over $2,520,840 up to $4,998,000 are worth 15%.

There is also a maximum of earnings you can accumulate in a given year, over that threshold, your income is not taxed for social security and you are not earning any future benefits. In 2021, this value is $142,800 and is adjusted for inflation each year:

Source: Contribution and Benefit Base

Because there is a reduction when you have to use the equivalent Canadian work credits, the actual value of SSA is reduced according to how many Canadian work credits you have to use. For example, if you have only 6 credits, you will be getting 6/40 = 15% of the SSA pension. This will usually put you before the first bend point, so instead of earning 90% of your expected SSA amount, you are actually only earning 13.5% of that value.

For example, assuming someone started US earnings in 2015, with the maximum amount allowed per year until 2021, the following graph is obtained:

Keep in mind, that if you were purely to work in the US for less than 10 years, you would get 0 benefits at all since you did not work for 40 credits. This at least gives you something, even if you are not getting the full value of the SSA benefits.

The same graph can be show using using Lifetime Indexed earnings:

As you can see, the red-line which represents the pro-rated pension is curved instead of the flat linear lines you see in blue. They eventually merge once you receive full SSA pension after having worked 10 years in the US.

You have 40 or more credits: Full benefits allowed, but reduced through WEP.

If you have more than 40 credits, the red line reaches the blue line, it means that the tax treaty does not apply anymore. You do not need to use Canadian credits to be eligible, so you can compute your SSA benefits directly using US SSA tools. This sounds great, except there is a catch.

If you are receiving CPP/RRQ or any pension that was accumulated from work that was not taxable by the SSA (for example, Canadian work!), there is a penalty called the Windfall Elimination Provision (WEP).

The actual details of the WEP are explained by SSA here:

EN-05-10045 – Windfall Elimination Provision – January 2021

The WEP does not apply if you are using the tax treaty. As such, having less than 40 credits can actually bring you more money in certain cases.

Because you are receiving the full SSA pension, you are also following SSA rules, and they have a rule called the WEP which was created to reduce your SSA pension if you are eligible from a pension from another source where you were not taxed for SSA. This rule exists for when you are working in a job that provides a pension without you contributing to SSA. This rule was created to prevent people from getting too high of SSA benefits since they were not low-income earners anymore.

It makes sense, but it also applies to a job you had outside the US SSA jurisdiction. This program depends on how many years you have worked in the US compared to Canada. If you have worked 30 years in the US, you will not see a big reduction, possibly none. If you have worked 20 years, you may see a 60% reduction. This reduction only applies when you are receiving your non-SSA benefit. So if there are years where you are not receiving a Canadian pension, then your SSA benefit will not be reduced for that year.

This reduction applies to the first bend point only. Instead of being worth 90%, it will be worth another value depending on how many years you had substantial earnings in the US. These substantial earnings requirements are rather low, so it should be easy to achieve them for any given year you are working in the US:

It is difficult to eliminate WEP since it requires a large amount of US work years. Even if you worked 24 years in the US, you still see the first bend point being reduced to 60% instead of being the usual 90%.

Although you see values in 45% and 40%, there is also a minimum applied to the reduction. The full pension cannot be reduced by more than 50% in total. Keep in mind the reduction is only applied before the first bend point.

Putting that together in our previous graph gives us the following interesting graph. As you can see, you are being punished strongly after 10 years, and the punishment in absolute value stays more or less constant until year 20, where the gap reduces and finally closes. That’s where the WEP starts going up by 5% increment, until it reaches the normal 90% bend point after 30 years.

Even more so, you will earn more SSA benefits in year 9, than in year 10-11-12. The critical region is thus around year 10 where you are punished until you recover shortly after year 12.

If this is your situation, keep in mind this WEP reduction is only applied when you are receiving an external pension, such a CPP/RRQ. If you delay your CPP or RRQ, the WEP will not apply until you start receiving the pension. This can lead to multiple different strategies:

Start both CPP and SSA early.

Both CPP and SSA will be reduced in pension and WEP will apply immediately. This strategy may make sense if you need the money immediately or if you don’t expect to live past average life expectancy.

Start CPP early and delay SSA.

The CPP will be available immediately and will be reduced. The delay of SSA will increase its value when it starts, and this can offset the WEP reduction.

Start SSA early and delay CPP

The SSA benefits will be available immediately, but WEP won’t apply until CPP starts. Once CPP starts, the SSA benefits will be reduced through WEP but the CPP benefits will be higher than usual which will compensate for the SSA reduction.

Delay SSA and CPP

This will give you the maximum SSA benefits and maximum CPP benefits. The SSA benefits will be reduced through WEP, but both SSA and CPP will be higher than usual. This strategy is especially useful if you expect to live long past the life expectancy as the added benefits.

Further discussion of these optimization strategies are available here:

Social Security Strategies When You Also Have a Canadian Pension

What about me?

Using Social Security Calculator: Get Started, and inserting minimal values for the years where I did not work in the US:

2014 $4,800 $4,800

2013 $4,640 $4,640

2012 $4,520 $4,520

This is a workaround for the missing feature of using Canadian credits:

https://github.com/Gregable/social-security-tools/issues/176

I come to a result of $1,312 per month, past the first bend point, but before the second bent point.

Per year, this gives me $15,744 per year. Wow, this is pretty awesome actually.

The SSA program normal retirement age is 67. You can delay up to 70, or take early up to 62.

Between 64 and 67, the reduction is 6.6% per year (0.55% per month); between 64 and 62, the reduction is 5% per year (0.416% per month). The maximum reduction is thus 6.6% * 3 + 5% * 2 = 30%.

If you delay, you get an increased benefit of 8% per year, up to a maximum of 24%. Hence the SSA benefits will vary between 70% to 124% of the normal value.

Delaying, or adding years will modify the benefits accordingly:

In my case, I have 28 credits in the US, so I have to use 12 credits in Canada to be eligible for SSA. This means I will get 70% of the SSA insurance amount, so $11,020 per year at age 67. Since I did not work more than 10 years, I am not impacted by WEP.

Conclusion

The SSA benefits use your Lifetime Indexed Earnings of your best 35 years to compute a Primary Insurance Amount (PIA) which represents your monthly pension.

You can delay or take the SSA early to increase your benefits.

You need 40 US SSA credits to be eligible for SSA benefits. You may use Canadian work year credits to accumulate 4 SSA credits per year.

If you had to use Canadian credits, your benefits will be reduced according to how many Canadian credits you used.

If you do not need to use Canadian credits to get SSA benefits, your SSA benefits will be reduced through WEP when you receive CPP/RRQ payments.

Appendix

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