Canadians have better retirement prospects than Americans

Canadians have to save significantly less than Americans for retirement because they have lower healthcare costs.

“We have clients who straddle both the Canadian and U.S. jurisdictions,” says Yafa Sakkejha, client relations at the Beneplan Co-operative. “One retiree told me in the U.S. she pays four times what she pays in Canada to get the exact same coverage.”

On average, that client spends $200 in Canada per month for healthcare and $800 in the U.S., says Sakkejha. In fact, it’s common for Americans to spend $800 to $1,000 per month.

The average 65-year-old retired American couple with Medicare coverage would need to save about $240,000 for retirement, not including long-term care or dental, finds a Fidelity study.

Meanwhile, the Canadian government covers about 70% of expenses for retirees, according to Fidelity.

“Because of the Canadian system, it’s unlikely that someone in retirement will be hit with a catastrophic healthcare bill—that’s the risk in the U.S.,” says Peter Drake, vice president retirement and economic research at Fidelity.

And the other 30%? That’s what Canadians have to pick up—12% for private health insurance, 14% for out-of-pocket expenses (such as over-the-counter medication), and 4% for other costs.

Drake suggests people near retirement divide expenses into essential versus discretionary, and put away funds in case of emergencies—health or otherwise.

For DC plan sponsors offering financial education sessions to their members, an explanation of how such such emergencies affect retirement income could be a good training opportunity. If an employee’s spouse needs long-term care, for instance, which can cost $25,000 to $30,000 per year, the member needs to understand what kinds of adjustments he or she would need to make.

Plan members should also know government programs exist to help subsidize the cost of drugs, such as Ontario Trillium Benefit.

“Sometimes people aren’t aware so they look for other ways to cut their spending in retirement,” says Sakkejha. “It’s far easier to take advantage of these programs than most people think.”