Retiring to Canada: A Financial Planning Guide

Written by Tiffany Woodfield, CRPC^®, CIM^®, TEP^®
Reading Time: 9 minutes 29 seconds

When retiring to Canada from the US, expatriates and dual-citizens are often unprepared for the complexities of the financial transition.

Table of Contents:

1. The Cost of Retiring and Living in Canada
2. CPP Pension Plan Eligibility
3. Old Age Security
4. US Pension in Canada
5. Healthcare in Canada
6. Avoiding IRA Issues
7. Keeping Your US Citizenship
8. Selling Your US Home
9. Buying a Home in Canada
10. Leave Your Car in the US
11. Professional Tax and Financial Advice
12. Retirement in Canada vs. USA
13. Minimizing Your Tax Burden
14. Working with a Cross-Border Financial Advisor
15. Should You Move?

Many of the U.S. brokerage firms such as Fidelity and Wells Fargo are informing their clients who are not US residents that they cannot service their account. These regulations are not new. They came out prior to Foreign Accounts Tax Compliance ACT (FACTA), but the financial institutions have been recently enforcing them much more strictly. Even updating a phone number can be a trigger for your brokerage firm that you are no longer a U.S. resident.

A client is then faced with two options: to find another advisor or close out their account and have a major taxable event.

Additional downsides include:

• A Canadian advisor, unless dual licensed, cannot manage your IRA
• Finding the answers and someone to guide you is exceedingly difficult
• Your 401(k) account may be restricted and frozen
• Certain investments in Canada cause an additional tax liability in the US.

Before you get too worried, you should know that there are financial planning solutions available for every cross-border issue you might be facing.

If you deal with a firm who specializes in helping people retiring to Canada from the US, they can help you avoid the common pitfalls. With a U.S. Canada dual licensed advisor you can keep your IRA intact and have it managed in Canada. Your cross-border team can help if you decide to move your 401(k) into a rollover IRA and have it managed from Canada.

In this article, we’ll review some of the key areas that every American, dual-citizen, or expatriates should know and understand before moving or retiring to Canada. This is important because common Canadian investments and accounts can cause additional complications and liabilities if you’re a U.S. citizen or dual-citizen living in Canada.

The Cost of Retiring and Living in Canada: How Much Do You Need?

Often clients wonder how much things will cost when living in Canada compared to the United States. While the costs depend greatly on your lifestyle and where you are going to live, there are certain things that are more and others that are less expensive. In Canada, healthcare and rent tend to be less while gasoline, food and consumer goods are more expensive.

When Will You Be Eligible for Canadian Pension Plan (CPP)?

You will be eligible for the Canada Pension Plan (CPP) if you worked in Canada after the age of 18 and paid into CPP through payroll deductions. You also may receive credits from a former spouse or former common law relationship. You can start CPP benefits at a reduced rate at age 60 or full retirement age at 65 or receive delayed credits if you wait until age 70.

To get your CPP information, register for a My Service Canada Account here>

Worktime in the US may qualify towards CPP due to the Canada-US Totalization Agreement between the two countries.

To view the Social Security Agreement with Canada click here>

Will you be Eligible for Old Age Security (OAS)?

You may be entitled to Old Age Security in Canada (OAS) if you are 65 years or older, a Canadian Citizen or permanent resident of Canada, and have lived in Canada after the age of 18 for at least 10 years.

Accessing Your US Pension in Canada

It is best to sign up for a My Security Online account before you move as you need a US address for this. This can be done here on the government website. If you are already living in Canada, go to the SSA Foreign Page for the closest foreign affairs office and phone numbers to call from Canada. File with the Social Security Association three months before you want your payments or eligibility to begin.

Healthcare in Canada

Canada has a publicly funded universal health care system. If you are a Canadian citizen or permanent resident, you do not pay for most healthcare services. To get access, you will need a government health insurance card from your province, which you must show at the medical clinic or hospital.

Getting Health Insurance Before You Move

Each province has their own health insurance plan and it can take 3 months after you apply to get medical coverage in most provinces. You should get private health care insurance while you wait for provincial coverage.

Avoid IRA Trouble by Planning Your US and Canada Taxes

Americans and green card holders living in Canada have to file taxes in Canada and the U.S. The Canada-United States Income Tax Treaty helps avoid double taxation on the same income. Working with a Canada-US tax accountant is very helpful as they are up to date with the tax code changes and laws. They can help you avoid being penalized and are able to take advantage of the benefits of the treaty.

Keeping Your US Citizenship

There is often a fear around the liability of having this continual tie to the U.S. and the potential tax burden with the IRS. Many people think the solution is to renounce their citizenship. This may be the best decision for some, but before you decide to start this costly and time-consuming process, speak to a cross border tax accountant to understand your tax liability. The continual tax filing obligation doesn’t mean you owe taxes in the U.S. In Canada we have a higher tax liability and often foreign tax credits reduce any tax owed to the United States.

Keeping your US citizenship allows you the benefit of moving back to the U.S., if you decide to do so in the future. It is a personal decision and all factors should be taken into consideration, not just the potential tax liability. Regarding your investments, when you work with a Cross- Border Financial Advisor, you will be helped whether you live in Canada or the US.

Selling Your US Home

If you are selling your US home, there is a capital gain exclusion of up to USD $250,000 if single or USD $500,000 if married.  

You must have lived in the home for two of the past five years. You can use this exclusion once every two years. Any additional capital gain above these amounts will be taxed at the long-term capital gains rates in the US. You can find out more by reading Publication 523 on the IRS website. 

Resources for Buying a Home in Canada: 

• Realtor 
• The Canadian Real Estate Association 

Why You Should Leave Your Car in the US

Canada’s safety standards for vehicles are different to those of the US. Vehicles must meet Transport Canada’s import and admissibility requirements before being imported. To make the necessary updates, it may make more sense to sell your vehicle and purchase a new one in Canada. Other cost considerations are Registrar of Import Vehicles (RIV) fees, duties and taxes. Also research if there are any recalls on your vehicle.

Seeking Professional Tax and Financial Advice will Save You Time and Reduce Stress

One of the biggest fears clients face in retiring to Canada is whether they could have a major taxable event that would impact the amount of money they have to live the life they want. By working with a cross-border team who understands their situation, they gain clarity on their cross-border tax liability, and can understand the best way to create an income stream.

A cross-border accountant can make sure you utilize all the foreign tax credits available and ensure you are onside with the IRS. A cross-border financial advisory team can not only manage an IRA from Canada, but also has an understanding of both the Canada and US government pension systems and how to create a financial plan to maximize your retirement funds.

Moving across the border may be a onetime event but your cross-border needs are ongoing and you need a team who can support you.

Retirement in Canada vs America: Old Age Pension and Old Age Security

Canada and the United States have mandatory old-age pension systems that are publicly funded through taxes.  

Both pensions offer some benefits for retirement, survivor, disability and minor children. The Canadian CPP income thresholds and tax rates are lower than Social Security. As a result, the benefits from CPP tend to be lower than those of Social Security. The average CPP monthly payout in 2024 is CAD $816.52, and the maximum payout is CAD $1,364.60   

In the US, the average social security payment in 2024 is USD $1782.74 per month, and the maximum monthly benefit is USD $4,873. Both depend on your earnings history and whether you file at full retirement age, early, or at age 70. 

Canada also has Old Age Security (OAS), which is in addition to CPP. It is based on the time you have lived in Canada over the age of 18. The average OAS payment for 2024 is CAD $713.  

If you earn more than CAD $90,997, the government claws back the OAS payment, and if you earn more than CAD$142,609 (between ages 65 and 74) or $148,179 (age 75 and over), it is reduced to zero. 

A significant concern many people have is the solvency of Social Security in the United States. The most recent Trustee Report, released in 2023, confirms that the Trust Fund reserves will be depleted in 2034. This doesn't mean the benefits will completely stop at this time; it is just that there will only be enough to cover 80% of the benefits if Congress doesn't take any action.  

It is assumed that Congress will create a plan before then to ensure the solvency of the Trust Funds. In Canada, the Canadian Pension Plan does not face a similar problem. 

Additional Resources: Canadian Public Pensions 

Minimize Your Retirement Tax Burden as a Dual Citizen

To avoid overpaying on taxes as a US person retiring in Canada, there are steps you can take to minimize your retirement tax burden.

• Do not collapse your retirement account such as an IRA and take all the income in one year
• Do not invest in anything that the IRS views as a Passive Foreign Investment Company (PFIC)
• Do not move a Rollover IRA into an RRSP
• Do work with a team who specializes in client situations similar to yours and understands government pensions on both sides of the border, and the rules around RMD’s
• Do work with a cross-border accountant who understands all the foreign tax credits to reduce your tax liability

Working with a Cross-Border Financial Advisor and Accountant Is Critical

Consulting with a Cross-Border Financial Advisor and Accountant before you move is important to help prevent costly mistakes. At SWAN Wealth Management of Raymond James Ltd., we work with you on the steps to take to keep your retirement accounts intact and managed from Canada. As dual-licensed financial advisors, we understand both systems and can help you understand the investments you can keep once you are living in Canada. In addition, we work with a network of cross-border accountants and cross-border lawyers who can make your transition to Canada smoother.

A cross-border accountant can guide you and make sure you use all the available foreign tax credits to your advantage. They understand how the two systems work and can help you avoid double taxation.

A dual-licensed Canada and US financial advisor can inform you on how to keep your retirement accounts intact and avoid receiving a letter stating you have 30-90 days to find another advisor or you will have to close out your account.

We recommend working with an accountant who specializes in helping people in situations similar to yours. They can guide you on how to avoid double taxation and stay on side with the IRS. A cross-border licensed financial advisor can help you avoid having to collapse your retirement accounts and face a major taxable event.

For more information on the tax treaty between the US and Canada: Convention Between Canada and the United States of America

Moving Back to Canada to Retire: Should You Do It?

There are many factors to consider when making the decision on whether you should move back to Canada to retire. The most important being where do you want to live. Other considerations are family, lifestyle, cost of living and the medical system.

What shouldn’t hold you back is the fear around how to make the financial transition. Although it seems daunting, it is made easier by working with a team who specialize in helping people like you.

Summary of Key Points:

• Consider the cost of living in Canada versus the United States
• Seek professional tax and financial advice from cross-border specialists to reduce stress and save money
• Healthcare in Canada is good but remember to get health insurance for the first few months when you arrive in Canada
• You may be eligible for government pensions from Canada and the US depending on your work history
• It is best to sign up for a Social Security account before you move
• A cross-border advisor can manage your IRA whether you live in Canada or the US
• Avoid common pitfalls as a dual citizen or green card holder living in Canada

Are you an American, Dual-Citizen or Expatriate retiring in Canada?

To ensure that you’re optimizing your cross-border financial plan, we recommend speaking with one of our Cross-Border Financial Advisors. Schedule a 15-minute discovery call and find out how we can help you simplify and optimize your retirement investments.

Common Questions about Retiring to Canada

What should I consider when retiring to Canada from the US? 
You should consider the tax implications, healthcare options, income sources and potential changes to your retirement income. It's also important to understand the residency requirements and financial planning needed for a smooth transition. 

What financial and tax obligations do Canadian citizens need to be aware of? 
Canadian citizens returning to Canada need to be aware of their tax residency status and how their worldwide income will be taxed. They must also understand their obligations to file taxes in both Canada and potentially the US. 

How will the Canada Revenue Agency assess my taxable income once I retire in Canada? 
The Canada Revenue Agency will assess your taxable income based on your worldwide income if you are considered a resident for tax purposes. This includes pensions, investments, and any other sources of income. 

What is the difference between income tax in Canada and the US? 
Income tax rates and brackets differ between Canada and the US, with Canada generally having higher marginal tax rates. Additionally, Canada taxes worldwide income for residents, while the US bases taxation on whether you are considered a “US person” regardless of residency. 

How will income tax in Canada affect my retirement income? 
Canadian income tax will apply to all your retirement income sources, including US pensions and Social Security benefits. Proper tax planning can minimize the overall tax burden on your retirement income. 

Are Canadian taxes higher than American taxes? 
In general, Canadian taxes are often higher than American taxes due to higher marginal tax rates and a broader range of taxable income. In addition, there isn’t the option to file jointly with your spouse. This can impact the overall net income for retirees. 

Do permanent residents need additional medical insurance when retiring in Canada? 
Permanent residents in Canada may need additional medical insurance to cover services not provided by the public healthcare system. This can include prescription medications, dental care, and vision care. 

Is private medical insurance necessary for my retirement in Canada? 
Private medical insurance can be necessary to cover gaps in the public healthcare system, such as extended health benefits. It helps ensure comprehensive healthcare coverage during retirement. 

How might the Canadian economy impact my retirement plans? 
The Canadian economy can impact your retirement plans through inflation, investment returns, and currency exchange rates. Economic stability and growth are important for maintaining the value of your retirement savings. 

Are my Medicare premiums still applicable if I move to Canada? 
If you move to Canada, you might not be able to use Medicare for healthcare services in Canada. Instead, you'll rely on the Canadian healthcare system and may need additional private insurance. Some people still keep paying their Medicare premium because they spend a lot of time in the US.  

What is the Guaranteed Income Supplement? 
The Guaranteed Income Supplement (GIS) is a monthly benefit for low-income seniors who are already receiving Old Age Security (OAS) in Canada. It provides additional financial support to help with living expenses. 

What happens to my Social Security benefits when I retire to Canada? 
Your US Social Security benefits can still be received while living in Canada, but they may be subject to Canadian taxes. It's important to understand the tax treaty between the US and Canada to avoid double taxation. 

Will my tax obligations increase if I retire in Canada as a dual citizen? 
As a dual citizen, you may have tax obligations in both the US and Canada, which can increase your overall tax burden. Proper tax planning and understanding tax treaties are essential to manage these obligations and avoid double taxation. 

How long can I stay in Canada if I’m not yet a permanent resident? 
If you’re not yet a permanent resident, you can stay in Canada for up to six months as a visitor. To stay longer, you need to apply for an extension or pursue permanent residency. 

Schedule a Call

 

ABOUT THE AUTHOR

Tiffany Woodfield is a dual-licensed financial advisor and the co-founder of SWAN Wealth Management, along with her husband, John Woodfield. Tiffany specializes in advising clients who live both in Canada and the United States and need to simplify their cross-border financial plan, move their assets across the border, and optimize their investments so they can minimize their tax burden. Together Tiffany and John Woodfield, CFP and Portfolio Manager, help their clients simplify their cross-border finances and create long-term revenue streams that will keep their assets safe whether they live in Canada or the US. Click here to schedule an introductory call with SWANWealth Management.