What's the Difference Between Retirement in Canada and America?

[bostonangler]

Retirement in Canada vs. America: An Overview

American and Canadian governments provide many of the same types of services to those planning for retirement and those who have retired. Overall, however, Canadian retirees find life after work to be much less stressful, as fears of running out of money are not as prevalent as they are in the U.S.—fears that drive some American retirees to find ways to supplement their retirement incomes.

Key Takeaways

• Canada and America both allow citizens to have tax-advantaged retirement accounts: the Canadian RRSP and TFSA, similar to the American Traditional IRA and Roth IRA, respectively.
• Canadian retirement accounts have more generous contribution limits and fewer distribution restrictions than their American counterparts.
• Canada's primary pension plan for seniors, Old Age Security, is funded by general tax revenues, while America's Social Security is funded by payroll taxes.
• Canada's single-payer health insurance is available to citizens throughout their lives; America's single-payer system, Medicare, is eligible only to those 65 and older and covers a lower percentage of medical costs.
• Canadians tend to pay more substantial income taxes than Americans.

A major benefit for Canadians is the publicly-funded universal healthcare system, which provides them with essential medical services throughout their lives, as well as in retirement, without co-pays or deductibles. In contrast, unless they are disabled or extremely low income, Americans have no single-payer insurance until they reach age 65, when they can qualify for Medicare. Even that is far from comprehensive. Medicare covers about 62% of healthcare costs. A 2018 study by the Employee Benefits Research Institute estimates that a 65-year-old couple, without employer health coverage, will require approximately $400,000 to comfortably afford Medicare premiums and out-of-pocket medical expenses.

Key Differences: Retirement Savings Plans

When it comes to saving for retirement, Canada and America both offer individuals similar financial vehicles, with similar tax advantages.

In Canada, Registered Retirement Savings Plans (RRSP) allow investors to receive a tax deduction on their yearly contributions. Money invested in the plan grows tax-deferred, which advances the benefits of compounded returns. Contributions can be made until the age of 71, and the government sets maximum limits on the amount that can be placed into an RRSP account (18% of a worker's pay, up to $26,500 for 2019). Withdrawals can occur at any time but are classified as taxable income, which becomes subject to withholding taxes. In the year in which the taxpayer turns 71, the RRSP must be either cashed out or rolled over into an annuity or Registered Retirement Income Fund (RRIF).

For American taxpayers, a traditional IRA is structured to provide the same sorts of benefits, whereby contributions are tax-deductible and capital gains are tax-deferred until distributions out of the account are realized. Age stipulations are similar; investors can contribute to their traditional IRA until they reach 70^½, at which point mandatory distributions are required.

IRA contributions are more limited, however. For 2019, the IRS states that "the maximum contribution that can be made to a traditional or Roth IRA, is the smaller of $6,000, or the amount of your taxable compensation for the taxable year." People over the age of 50 can sock away an additional $1,000 per year in their IRAs. Also, IRAs carry penalties if funds are withdrawn before the taxpayer reaches age 59^½.

 

In terms of contribution amounts, American 401(k) plans, offered through an employer, are more comparable to RRSPs: the annual maximum in 2019 is $19,000, or $25,000 for those over age 50. At May 2019 exchange rates, CAD $26,500 equals USD $19,585.

 

Despite the fact that RRSPs allow for greater contributions, wealthy Canadians tend to pay more taxes than their southern neighbors.

 

Canada's TFSA vs. America's Roth IRA

 

Canada's Tax-Free Savings Account (TFSA) is fairly similar to Roth IRAs in the U.S. Both of these retirement-focused vehicles are funded with after-tax money (there's no deduction for the contribution), but they do grow tax-free, and withdrawals are not taxed. Canadian residents over the age of 18 can contribute up to $6,000 to TFSAs in 2019; if you're contributing in 2019 for the first time, you're eligible to deposit $63,500, provided you turned 18 in 2009 (the year the accounts originated). The annual maximum contribution to a Roth IRA is also $6,000, or $7,000 for those over the age of 50. Another similarity between these accounts: There is no limit on when one must stop making contributions and begin withdrawing money.

 

TFSAs offer two significant advantages over Roth IRAs. Young Canadians saving for retirement are able to carry over their contributions to future years, while such an option is not available with Roth IRAs. For example, if a taxpayer is 35 years old and unable to contribute $6,000 into their account, due to an unforeseen outlay, next year the total allowable amount accumulates to $12,000. The contribution limits have changed year-to-year since the TFSA was first introduced in 2009, with the limit sometimes set at different ranges between $5,000 and $10,000; the current cumulative limit for 2019 is $63,500.

 

Secondly, while sums equivalent to contributions can be withdrawn at any time, distributions of earnings out of Roth IRAs must be classified as "qualified" in order to avoid taxes. Qualified distributions are those made after the account has been open for five years, and the taxpayer is either disabled or is over 59^½ years old. Canada's plan does offer more flexibility in terms of providing benefits for those planning for retirement.

 

Key Differences: Government Pensions

Both the U.S. and Canada provide workers with a guaranteed income once they reach retirement age. These federal pension plans differ from each other in several ways, however.

 

Canada's Old Age Security vs. America's Social Security

 

Canada has a three-part system: Old Age Security (OAS), financed by Canadian tax dollars, provides benefits to eligible Canadians 65 years of age and older; the Canada Pension Plan (CPP), funded by payroll deductions (like Social Security in the U.S), makes benefits available as early as age 60; and the Guaranteed Income Supplement (GIS) is available to the very poorest Canadians.

 

OAS provides benefits to eligible citizens 65 years of age and older. Although there are complex rules to determine the amount of the pension payment, typically a person who has lived in Canada for 40 years, after turning 18, is qualified to receive the full payment (as of 2019) of $601.45 per month. Additionally, Guaranteed Income Supplements ($540.77 or $898.32, dependent on marital status) and Allowances ($1,142.22) are provided for pensioners with an annual income between $18,240 and $33,744 annually. Much like with Social Security, OAS beneficiaries who choose to delay receiving benefits can get higher payouts; currently, benefits can be delayed for up to five years, up to age 70. OAS benefits are not considered taxable income, but they do carry certain payback provisions for high-income earners.

 

To subsidize universal healthcare and pensions, Canada imposes higher income taxes on its citizens than the U.S. does on its residents.

American Social Security, on the other hand, does not focus exclusively on providing retirement income but encompasses such additional areas as disability income, survivor benefits, and Medicare (to the extent that Medicare premiums are taken out of Social Security benefits). Social Security income tax issues are slightly more complex and depend on such factors as the recipient's marital status and whether or not income was generated from other sources; the information provided in the IRS Form SSA-1099 will determine the tax rate for the benefit.

 

Individuals are eligible to receive partial benefits upon turning 62 and full benefits ($2,861 per month is the maximum as of 2019) once they are 66 or 67, depending on the year of birth. Eligibility is determined through a credit system, whereby qualified recipients must obtain a minimum of 40 credits, and they can earn additional credits to increase their payments by delaying initial benefit payments up to age 70.

 

Generally, Canada's retirement programs are considered safer, as they are funded out of general tax revenues. There are continuous fears in the U.S. that the Social Security system, which is funded through payroll taxes on employee wages, will become bankrupt.

https://www.investopedia.com/articles/retirement/11/difference-retiring-canada-america.asp?utm_campaign=quote-yahoo&utm_source=yahoo&utm_medium=referral&yptr=yahoo

 

B/A

[umbertino]

 

Interesting, B/A....Thanks for sharing......Sorry ...Out of pluses right now

[markb57]

the reason Americans fear SS will go bankrupt is because congress stole from it back in '68 and never paid it back and took it out of a sovereign acct and put it in the general fund so they could steal from it easier. In reality, an american working for 35-40 years contributing to SS should retire on about 4-6K a month but that doesn't happen because congress stole the money.

[bostonangler]

3 minutes ago, markb57 said:

the reason Americans fear SS will go bankrupt is because congress stole from it back in '68 and never paid it back and took it out of a sovereign acct and put it in the general fund so they could steal from it easier. In reality, an american working for 35-40 years contributing to SS should retire on about 4-6K a month but that doesn't happen because congress stole the money.

 

I know my folks who are in their 80's pay over $600 per month for supplemental insurance... They never planned on that. All through their life health insurance wasn't the scam it is today... It causes a hardship Canadians don't have it would appear...

 

B/A

[8th ID]

17 hours ago, markb57 said:

Americans fear SS will go bankrupt is because congress stole from it back in '68 and never paid it back and took it out of a sovereign acct and put it in the general fund so they could steal from it easier.

Lets not forget the 70+ million that should be paying into the system that never will because they were aborted.

 

17 hours ago, bostonangler said:

All through their life health insurance wasn't the scam it is today.

And who is responsible for the scam put on us with health care? Oh yeah, your chosen one...obummer and pelosi. "We have to pass the bill before we can read it.", remember that?

[bostonangler]

2 minutes ago, 8th ID said:

And who is responsible for the scam put on us with health care? Oh yeah, your chosen one...obummer and pelosi. "We have to pass the bill before we can read it.", remember that?

 

Unless you've been living in a box, you would know the insurance companies have been writing the laws for about 30 years... Our government is bought and paid for by corporations... There was a time when they couldn't contribute to campaigns and couldn't influence like they having been doing since that change.

 

B/A

[8th ID]

1 minute ago, bostonangler said:

Our government is bought and paid for by corporations... There was a time when they couldn't contribute to campaigns and couldn't influence like they having been doing since that change.

Oh, I agree with that. There should be limits on contributions from companies, but I also want term limits on politicians. A free market is the answer though, not socialized health care or buying power through political means.

[bostonangler]

Just now, 8th ID said:

Oh, I agree with that. There should be limits on contributions from companies, but I also want term limits on politicians. A free market is the answer though, not socialized health care or buying power through political means.

 

The candidate talking term limits is that guy Tom Steyer… I wish others would join in, but we'll never see it.

 

B/A

[nstoolman1]

He can talk all he wants. Congress will never go for it. 

[8th ID]

1 minute ago, bostonangler said:

 

The candidate talking term limits is that guy Tom Steyer… I wish others would join in, but we'll never see it.

 

B/A

Unless the people protested like they are in Iraq, we will never see term limits. These bozo's will never vote themselves out of a job.

[bostonangler]

3 minutes ago, 8th ID said:

Unless the people protested like they are in Iraq, we will never see term limits. These bozo's will never vote themselves out of a job.

 

I'm out of pluses but I owe you one... No one would vote themselves out of their job. That's human nature. But we can vote them out and Americans need to start voting out career politicians. Think people will vote out the old guard? I doubt it.

 

B/A

[8th ID]

Your right...I doubt they would vote them out. Too many sheeple.

[Shabibilicious]

The difference is..........3.280833333333333333    Your welcome.

 

GO RV, then BV

[nstoolman1]

30 minutes ago, Shabibilicious said:

The difference is..........3.280833333333333333    Your welcome.

 

GO RV, then BV

 

I will bite. 

 

[Shabibilicious]

Just now, nstoolman1 said:

 

I will bite. 

 

 

Oh....conversion to metric.  Sorry.  

 

GO RV, then BV

[nstoolman1]

[md11fr8dawg]

19 hours ago, markb57 said:

the reason Americans fear SS will go bankrupt is because congress stole from it back in '68 and never paid it back and took it out of a sovereign acct and put it in the general fund so they could steal from it easier. In reality, an american working for 35-40 years contributing to SS should retire on about 4-6K a month but that doesn't happen because congress stole the money.

 

The Canadian Pension Plan (unlike the geniuses that run our bankrupt plan) had from taxes $100 billion in the plan when it was established in 2009. They invest that money in high quality stocks worldwide, that are safe and pay sizable dividends. The fund has grown (while still paying entitled recipients ) to $400 billion today and is projected to grow to $1.5 trillion by 2039. This is CAD not USD. Compare the common sense way they mange their fund for retirees versus the way do. YGTBSM!!! They need not worry about their fund running dry while our crooks have robbed us blind. And the fools are to lazy, stupid, incompetent or all three to do anything about it. Remember how the Rats HOWLED when Bush wanted to allow workers to put just 2% of their social security $$ in the market if you were younger than (I believe it was 50 yo) OH NOOOOO! can't do that, it would take it out of our legislative criminal's hands, so THAT IS NOT AN OPTION. Less $$, means less votes we can by, so WHO wants to push Granny over the cliff??

Edited December 12, 2019 by md11fr8dawg