Canada vs USA for Canadian Retirees

Is it better to be a Canadian in the USA or go back to Canada when you retire?  I get asked this question regularly by Canadian friends who live both sides of the border.

There is no simple or universal answer but I will try to provide some general information to help you decide.  Of course there are non-monetary reasons to be in one country or the other: family, friends, weather, sports, politics..

Let's first assume that you and/or your wife are middle class, have saved an adequate amount for retirement in RRSPs and/or IRA/401K's, are reasonably healthy, and have worked on both sides of the border.  Also, you can look at the income tax and property tax rates in your desired location to see the basic tax consequences - US income taxes are generally lower but property taxes are higher.

Canadian in the USA

• You pay US income taxes, but do not have to file Canadian tax forms except under unusual circumstances.
• Before age 65, you must find your own health insurance through ACA or other means, this will cost at least $20K a year.
• After age 65, you can qualify for Medicare, but this will still cost you $200-$400 a month for premiums.  Note that you can both qualify if only one spouse has worked the required 10 years in the USA, but your ages can only differ by 3 years (it is complicated, check out the Medicare website for more details).  There can be other costs depending on the treatment.
• At age 65 or so, you can qualify for social security, CPP, AND OAS.  The CPP and SS pensions will be coordinated so you can get SS even if you did not work for 10 years in the USA.  You get to keep your OAS pension, it cannot be clawed back - a major advantage.  Your CPP, OAS, and SS are entitled to preferential income tax treatment in the USA.
• You can cash in any Locked-In Retirement accounts from Canada (LIRA, LIRRSP..).
• If you cash in an RRSP while resident in the USA, you are only taxed on the difference between the value of the RRSP when you entered the USA and the value when you cash it in.  This is a major advantage, see your tax expert for more details on whether you can do this, it is not simple.
• If you cash in an IRA, you will be taxed on the full amount.
• You are subject to US estate taxes, which are very complex.  You will need a good estate lawyer to help you shelter your assets from the US tax man unless you and your spouse are US citizens.  You may still want to talk to a lawyer if you are a citizen as the estate laws are complex.
• You are pretty much on your own if you become impoverished, unemployed, or decide to re-train.  There is a disability social security pension scheme.  The US does not have as many generous social programs as Canada.
• Your municipality and state may give you some age related tax breaks on property.

Canadian Who Returned to Canada

• Three months after returning to Canada, you qualify for free medical insurance.  In some provinces, you may qualify immediately.
• You file US income taxes and file Canadian tax forms.  You will not be double taxed if you do it properly, the Canadian taxes are higher than US.
• At age 65 or so, you can qualify for social security, CPP, AND OAS.  The CPP and SS pensions will be coordinated so you can get SS even if you did not work for 10 years in the USA.  The SS, CPP and OAS will be taxed by the Canadian government but you can claim that as a tax credit in the USA, so you don't lose anything.  You likely lose your OAS pension, it will be clawed back - a major disadvantage.  
• You CANNOT cash in any Locked-In Retirement accounts from Canada (LIRA, LIRRSP..).  You have to follow the rules on payouts
• If you cash in an RRSP you are taxed on the full amount withdrawn.
• If you cash in an IRA, you will be taxed on the full amount.
• There are many generous social programs and tax breaks to help you if you are unemployed, disabled, decide to re-train, become impoverished, ..
• No estate taxes.
• Your municipality and state may give you some age related tax breaks on property.

As always, talk to a financial planning expert and a lawyer before you make any decisions and to get good information.  I provide this blog as a service but the information is not guaranteed to be complete or correct so you should not rely on it to make important decisions like where you are going to live for the rest of your life!