#18 – The US/Canada Financial Lingo Translation Episode

canada usa glossery

In this episode, the guys ask if the Canadian government makes it harder for us on our way to FIRE than for Americans? We’ll sample a few new beers as usual too. If you found this podcast you’re probably familiar with the FI/RE movement that has grown in popularity recently. Here at the FI Garage, we’re all on the path to FI, however, we consider the RE part optional.

Beer #1 – Guinness Draught [1:00]
Useful Tool – Our Listeners [5:00]

Thank you for helping us get to 2,000 listeners in one month and for all your feedback

The FI Garage Dictionary [7:30]

Has the Canadian Government made it easier or harder to fire?

Retirement and Other Accounts [9:30]
  • Traditional Individual Retirement Account (IRA) is like an RRSP BUT we are not charged penalties for early withdrawal [9:50]
  • Spousal IRA is like a Spousal RRSP [12:45]
  • Roth IRA is like a TFSA [13:05]
  • 401k is like a Group RRSP or a Defined Contribution Pension Plan [16:05]
  • 529 is like an RESP [19:19]
  • ABLE Account is like an RDSP [22:30]
  • Health Spending Account (HSA) – we don’t need these because we have private health care [25:15]
  • Flexible Spending Account (FSA) – pretax dollars that can fund expenses like vision, dental, etc. – we’d love a similar account in Canada! [26:20]
  • Simplified Employee Pension (SEP) IRA is like a Traditional IRA with higher limits [29:00]
  • Savings Incentive Match for Employees (SIMPLE) IRA is basically an RRSP match program [30:05]
  • Certificate of Deposit (CD) is essentially a GIC [31:08]

Maneuvers [32:05]

  • Backdoor Roth – we do not need this as everyone qualifies for TFSAs [32:05]
  • Roth IRA Conversion Ladder – we never incur penalties to withdraw from TFSAs or RRSPs [32:25]

Government Programs [32:55]

  • Social Security vs CPP, OAS, GIS, Pharmacare

Canadian Accounts [34:45]

  • LIRA – a holding place for pension plan money you have cashed out [35:29]
  • RRIF – what you convert an RRSP to if you want regular withdrawals or you are too old to hold RRSPs [36:25]
  • LIF – what you convert a LIRA to so you can withdraw money [37:40]
Reading List

10 Comments

  1. Hey guys,

    Interesting episode, as my FI journey has taken twists and turns I’ve found I am avoiding more and more US-focused material. There are so many differences that it quickly loses value past the basics.

    My vote is for Canada being the better place to FI. After hearing you describe the US accounts in detail it sounds like we have better options to save. However, I think our social safety net is the real game-changer. Not having the concern of outrageous healthcare expenses and fully funded CPP make a huge difference.

    A note on LIRA’s, I think these may be a lot more common then you implied they were on the program. While Defined Benefit Pension Plans are an endangered species many companies have replaced these with Defined Contribution Pension Plans. DCPP’s also convert to a LIRA if you leave your employer and decide to pull you funds out of their pension plan and have it in your own self directed account.

    1. Great points and thanks for the feedback!

      Transferring a Defined Benefit Pension Plan to a LIRA should be a carefully considered decision, but transferring a DCPP to a LIRA is likely a no-brainer (of course this is my opinion and in no way advice for anyone’s personal situation).

      1. I agree, most people’s DCPP are full of high fee actively managed funds and they should be transferred ASAP after employment ends.

        My current employer’s DCPP has always had good matching, 1:1 up to 6% of your salary, the funds they offered were ok but not great with MER’s between 0.5-1.5%. I was completely shocked when we moved to a new provider and the options drastically improved. We now have access to Canadian, US and International Index funds that compete with Vanguard on fees and targeted date funds that only cost 0.35%.

        The targeted date funds are an excellent option for the majority of my co-workers who plan to work until 65 and don’t know have much / any personal finance knowledge. My employer’s change of DCPP provider will make a massive difference in many people’s retirement without them ever appreciating it.

  2. Regarding the employer DCPP/RRSP high Manulife MER rant…
    My employer plan is through SunLife, fees are less than 1% but still higher than my self directed ETFs. I’ve mitigated my hard feelings by using this account for my fixed income asset allocation, since the differential in fees between the SunLife bond fund option and the bond ETF I would choose in my self directed account is the smallest, and they are essentially like products. As long as it works for your desired overall asset allocation ratio it might be a good option!

    1. That is a good option. I love the optimization, figuring our the smallest difference in fees between the funds. Those little amounts do make a difference over the long term. Do you find you can stay on top of re-balancing, or maintaining your asset allocation in your portfolio with this strategy? Cheers, Thanks for listening.

      1. So far so good in terms of rebalancing. We follow the Canadian couch potato 3 ETF portfolio, substituting ZAG with the bond fund in my employer account. At this point in time, between my husband and my various registered and non registered accounts, each has only 1 type of ETF except for 1 registered account with the largest balance and ongoing contributions. I’m using this one as our rebalancing account by maintaining the right proportion of each ETF to achieve our desired overall allocation. That way I only have to rebalance in the one account to achieve our combined overall asset allocation, and since it is registered no gains or losses are triggered. At some point I’ll likely need to play in two accounts to keep the right balance working, but so for it has helped keep things quite simple.
        Thanks for the great podcast, I really appreciate the Canadian content – and beer banter!

        1. Doing all your re-balancing within the registered account is a great way of keeping the allocations where you want them. It’s probably only going to get tricky when you take into account the tax considerations in your Non-registered accounts. We’re having to make some decisions of what to hold in non registered, and how we can keep the overall portfolio in balance. We are considering moving things around a bit, unfortunately our portfolios have become too complicated and simplification is in order! Thanks for listening and glad you enjoy the show, cheers!

  3. Great show as always! Thanks FI Garage – and thanks for the shout out for the bike ride to Camp Moustache 🙂 Total ride from Aldershot GO station to Camp Trillium is 78km + 10km to Union Station from my house in uptown Toronto. So much fun to do some outdoorsy stuff in September! Getting in one more ride and meeting you guys and the other folks at Camp Moustache was awesome. I hope to see you next year.

    1. We just might get lucky in the lottery for next year! Great meeting you and the rest of the people at camp. I’ve been thinking about getting myself into an E-bike. I tell myself that I would ride around town to do errands if I had a little help on the hills!!

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