Posted on 12/12/2019 8:08:29 AM PST by SeekAndFind
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.
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.
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 70½, 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 59½.
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 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 59½ years old. Canada's plan does offer more flexibility in terms of providing benefits for those planning for retirement.
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 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.
Canada doesn’t have Arizona
2nd. AMENDMENT,,,
Sorry.
RE: Canada doesn’t have Arizona
Why would one want to retire in Arizona? How are the summers out there?
In Canada, you’ll go to jail if you call someone a ‘little whippersnapper’.
I haven’t been warm since 1971.
Summers just like I like ‘em.
One day, maybe I’ll get there.
Exactly,
From Kingman
To
Tombstone!
I plan to make
MINE!
One retires in Florida, the other retires in Belize...............
Must one remain physically in Canada to enjoy those benefits for which one worked hard all one's adult life? Or are they suspended if one wishes to retire in, say, Arizona?
I thought so!
Regards,
in Canada you have to wear a fig leaf.
I'll take their summers over Michigan winters any time........I love heat
The difference between Canada and Florida during the winter is about 100F.
About 2°F colder Beer in Canada. Eh ?
This whole article is based upon money. There is more to retirement than funds. We have a better medical setup in the US than Canada does.
Since the article wishes to get into funds, the Canadian Institute for Health Information (CIHI) believes Canada spent approximately $228 billion on health care in 2016. That’s 11.1 per cent of Canada’s entire GDP and $6,299 for every Canadian resident. The US percentage is in 2018, 17.9 percent.
But these are numbers that don’t consistently configure the population. The US population is 321.2M against Canada’s 35.8M as of May of this year. So we have an additional 284M people than Canada and spend only 6.8% more than they do.
And none of this takes into consideration the amount of Canadians that come to the US for healthcare because they can’t get to their doctors and Detroit is the biggest supplier of healthcare to Canada’s people. And the amount of illegals that get healthcare in the US for free yearly is very close to the amount of their 6.8% alone. So, all in all, the healthcare in the US is more accessible, more bang for the buck, and more advanced.
rwood
Cold, warmth.
Alot more snow?
There’s a reason people retire to sunny Florida and Arizona.
“Why would one want to retire in Arizona? How are the summers out there?”
Depends on what part of AZ you are referring to. The Flagstaff, Prescott, and Sierra Vista areas have four seasons and temperatures rarely exceed 100 degrees in the summer time.
Somebody beat me to it! My point always says that the entire nation of Canada is north of the following states Montana Michigan Maine New Hampshire Vermont Washington
My next point is that there’s more people in Southern California then there is in the entire nation of Canada
The only part of the nation of Canada with even mildly temperate weather weather in the winter is Vancouver and British Columbia
So if you like snow and ice and more snow and more ice and blizzards and some more ice and some more snow and -20 Canada is for you!
IF YOU COULD BE HERE RIGHT NOW, YOU WOULDN'T MAKE THAT STATEMENT.
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