Canada and the U.S. to make changes to public retirement programs

Both Canada and the U.S. are making changes to their public retirement programs – by increasing contribution amounts!

Canada Pension Plan (CPP) Enhancement

The CPP Pension Plan Enhancement seeks to increase CPP retirement benefits beginning in 2019. The enhanced benefits will help young Canadians the most because they have more time to contribute to the CPP. The plan intends to help many Canadian families who are projected to lack retirement savings, particularly those who don’t have jobs that provide workplace pension plans and must rely on individual forms of private savings for their retirement.

In 2018, the percentage contribution was 4.95% each for the employee and the employer (9.9% combined) up to maximum earnings of $52,400. From 2019 to 2023, the percentage will go up gradually to 5.95% each (11.9% total), and from 2024 to 2025, additional savings limits will be introduced. The maximum earnings amount will ultimately be up by 14% by 2025, resulting in the growth of CPP retirement benefits from one-quarter to one-third of average work earnings.

U.S. Social Security

In 2019, U.S. Social Security recipients received a 2.8% Cost of Living Adjustment (COLA) increase on payments – the largest percentage increase since 2012. The maximum annual earnings amount subject to Social Security tax also increased from $128,400 to $132,900. In 2020, the COLA is 1.6% and the maximum earnings amount is $137,700.

Social Security and Medicare have a contribution rate of 7.65% each for the employer and employee (15.3% combined). The Social Security portion at 6.2% is subject to the maximums mentioned above. The Medicare portion at 1.45% is taken as a percentage of one’s entire earnings and not subject to a maximum. For individuals earning above $200,000 (or $250,000 for married filing jointly), an additional 0.09% Medicare tax is assessed.

If you are a Canadian who is thinking of moving to the U.S. for a job, it’s important to consider the Social Security taxes you will be required to pay and whether or not you should try to qualify for the benefits, especially since the contribution amounts will only increase in future years. No one wants to waste valuable earning years paying into the U.S. Social Security system out of their own wages and have nothing to show for it in the end.  In some circumstances, Canadians who move to the U.S. temporarily may remain covered under the CPP for up to five years.