The Canada Pension Plan and the U.S. Social Security strategy are publically provided, mandatory old-age pension systems. They some supply retirement, disability, and subsister benefits. But the magnitude you wage successful and the benefits you person disagree betwixt the two.
Key Takeaways
- Both the Canadian Pension Plan (CPP), and Social Security successful the U.S., are government-sponsored status income programs.
- CPP taxation rates and income thresholds are mostly little than those of Social Security. Benefits besides thin to beryllium lower.
- Taxed Canadian wages spell into a spot money managed by the CPP Investment Board, which invests the funds successful stocks, bonds, and different assets.
- Taxed U.S. Social Security wages spell into the Old-Age and Survivors Insurance Trust Fund and the Disability Insurance Trust Fund. The funds are invested wholly successful U.S. Treasury securities.
- Social Security faces the hazard of its reserve funds being depleted by 2033, which would marque it incapable to wage afloat benefits to retirees. The CPP doesn't person this problem.
What Is the Canada Pension Plan?
The Canada Pension Plan (CPP) is 1 of 3 levels of the Canadian status income system. It was established successful 1966 to supply retirement, survivor, and disablement benefits. Almost everyone who works successful Canada, extracurricular of Quebec, contributes to the CPP. A abstracted Quebec Pension Plan (QPP) provides akin benefits to its residents.
In general, you indispensable lend to the CPP (or the QPP if you enactment successful Quebec) if:
- You're implicit property 18
- As of 2021, you indispensable gain much than 3,500 Canadian dollars a year
If you person an employer, you wage fractional of the required contribution, and your leader pays the rest. If you're self-employed, you wage the full contribution. You marque contributions based connected your earnings. For 2021, the publication complaint is 10.9% (up from 10.5% successful 2020) of the magnitude you gain betwixt CA$3,500 and CA$61,600 (the maximum for 2020 was CA$58,700).
With this headdress successful place, the 2021 maximum publication for employers and employees is CA$3,166.45. If you're self-employed, it's CA$6,332.90.
The contributions spell into a money managed by the CPP Investment Board, which invests the assets "to maximize returns without undue hazard of loss."
Canada Pension Plan Benefits
Similar to the U.S. Social Security system, the Canada Pension Plan provides respective types of benefits:
- Retirement pension. You tin commencement afloat CPP status benefits astatine property 65. You tin get a permanently reduced magnitude arsenic aboriginal arsenic property 60, oregon arsenic precocious arsenic property 70 with a imperishable increase.
- Post-retirement benefit. If you're nether property 70 and you support moving portion you person your CPP status pension, you tin proceed to lend to the CPP. These contributions spell toward post-retirement benefits that summation your status income.
- Disability benefits. You tin get disablement benefits if you're nether property 65 and can't enactment owed to a disability.
- Survivor's pension. Your surviving spouse oregon common-law spouse tin cod benefits based connected your record.
- Children's benefits. If you dice oregon go severely disabled, your babelike children tin person benefits.
Your CPP benefits are based connected however overmuch you've contributed and however agelong you've been making contributions erstwhile you go eligible to cod benefits. For 2021, the maximum monthly status payment is CA$1,203.75. The mean magnitude for caller beneficiaries arsenic of March 2021 was CA$619.44.
What Is Social Security?
Social Security is simply a national benefits programme successful the U.S. that was founded successful 1935. In 2021, employees and employers each wage 6.2% successful taxes connected the archetypal $142,800 of income (up from $137,700 successful 2020). If you're self-employed, you wage the afloat 12.4%. For 2020, the maximum publication for employers and employees each is $8,853.60. If you're self-employed, it's $17,707.20 (12.4% of $142,800).
Most radical indispensable wage into Social Security, careless of age. However, exemptions whitethorn beryllium disposable to definite groups of taxpayers, including:
- Qualifying spiritual groups
- Nonresident aliens
- Students who enactment for the aforesaid schoolhouse they attend
- Foreign authorities employees
Social Security taxes spell into the Old Age and Survivors Insurance (OASI) Trust Fund and the Disability Insurance (DI) Trust Fund. Although legally distinct, they're collectively known arsenic "the Social Security Trust Funds"—or plain-old "Social Security" successful communal parlance.
All Social Security payroll taxes are enactment into the spot funds, and each of Social Security's benefits and administrative costs are paid retired of them. The spot funds are invested wholly successful U.S. Treasury securities.
Social Security Benefits
Like the CPP, the Social Security strategy provides respective types of benefits:
- Retirement benefits. Full Social Security status benefits commencement betwixt property 65 and 67, depending connected erstwhile you were born. You tin get a permanently reduced magnitude arsenic aboriginal arsenic property 62, oregon an accrued magnitude if you hold until property 70 to collect.
- Disability benefits. You tin get disablement benefits if you can't enactment owed to a disability. Your household members whitethorn besides beryllium eligible for benefits.
- Survivor benefits. Your surviving spouse and insignificant children whitethorn beryllium eligible to cod benefits based connected your record.
To suffice for Social Security benefits, you indispensable person 40 "work credits," which comes retired to astir 10 years of work. Your benefits are based connected your highest-earning 35 years of work. For 2021, the maximum monthly status payment is:
- $3,895 if you hold until property 70 to file
- $3,113 if you record astatine afloat status age
- $2,324 if you record astatine property 62
How Long Will Social Security Last?
Budget shortfalls person often threatened the solvency of Social Security. According to the 2021 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds, "The Old-Age and Survivors Insurance (OASI) Trust Fund, which pays status and survivors benefits, volition beryllium capable to wage scheduled benefits connected a timely ground until 2033…. At that time, the fund's reserves volition go depleted and continuing taxation income volition beryllium capable to wage 76% of scheduled benefits."
"The Disability Insurance (DI) Trust Fund, which pays disablement benefits, volition beryllium capable to wage scheduled benefits until 2057…. At that time, the fund's reserves volition go depleted and continuing taxation income volition beryllium capable to wage 91% of scheduled benefits," the trustees' study to Congress further noted.
As of 2021, Social Security's full yearly outgo exceeds its full income. But the spot funds' reserves volition supplement the program's income truthful that Social Security tin support paying afloat benefits until 2033 (to retirees) and 2057 (to the disabled). In theory, this gives policymakers clip to make a financing program for shoring up Social Security.
The Canada Pension Plan does not presently look a akin issue.
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