Is retirement any different for Canadians than it is for Americans? Here are just some of the differences between retiring in Canada versus the States.
The RRSP Vs Traditional IRA
The Canadian government gives its citizens several ways to save money. One of those ways is a Registered Retirement Savings Plan or “RRSP.” This plan allows investors to receive a tax deduction on yearly contributions to the plan. Savings grow tax-deferred over time until age 71, when no more savings may be added to the plan. The government sets maximum limits on the amount that can be placed in the account.
Canadians can, however, withdrawal funds at any time, but those withdrawals are subject to withholding taxes. At age 71, the plan must be rolled into an annuity or a Registered Retirement Income Fund (RIF).
Like the RRSP, the traditional IRA allows individuals to save money on a tax-deferred basis, but, there are strict limits on the amount that may be placed in the account. And, withdrawals prior to an individual’s age 59.5 incur a penalty tax of 10 percent on the amount withdrawn.
By age 70.5, retirees must start taking distributions from the account according to the IRS’s published required minimum distribution table – a table that calculates an individual’s life expectancy.
Individuals may “roll over” IRAs to any other type of retirement account, however, including an annuity, but the required minimum distribution must take effect starting by the individual’s age 70.5.
TFSA Vs Roth IRA
A Tax-Free Savings Account or TFSA is allows Canadians to contribute up to $5,000 annually to a retirement fund. In America, the equivalent is a Roth IRA. Americans contribute to the account, the savings grows tax deferred, and withdrawals are made tax-free at age 70.5 however retirees do not have to take the money by this age if they don’t want to.
Old Age Security Vs Social Security
The Old Age Security system in Canada is a social safety net that provides Canadians with a minimum pay based on their income. For example, the full payment under the system is $533 per month, with Guaranteed Income Supplements of $732.65 and additional Allowances of $1,013.54 if Canadians make under $29,904 or $38,784, respectively.
The benefits are fully taxable and there may be certain payback provisions for those earning a high income.
The Social Security system in the U.S. is a social welfare system that provides a basic income to individuals who retire with at least 40 work credits. Full benefits are equal to $2,346 per month once an individual reaches the age of 67. This income is paid regardless of an individual’s personal income.
But, certain income may make between 50 and 85 percent of the benefit subject to income tax.
Canadian Vs American Quality Of Life
Many people in both countries sell their home, look for a New Home Listing Service to downsize and live out their golden years in a community or a new neighbourhood of like-minded individuals.
But, both Canada and America typically rank near the top of the human development index. This index scores life expectancy, education, and standard of living. However, Canadian retirees often find life after work less stressful because they don’t fear running out of money nearly as much as retirees in America do.
That’s because Canada’s robust healthcare system and retirement benefits schemes tend to benefit Canadians more than the American counterpart benefits Americans.
A study by the Employee Benefits Research Institute estimates that a 65-year old couple living in America spends about $700,000 over their retired lifetime to cover out of pocket medical expenses not covered by Medicare.
Regardless of where you retire, don’t wait 10 years before you’re ready to call it quits. Plan early and save consistently. Even in Canada, you need retirement savings and the longer you save, the better.
John Vaughn helps armed forces personnel relocate in his work. He always appreciates the opportunity to share his insights with an online audience. He has already posted his thoughts on a variety of different websites.