When it comes to property rights and retirement planning, Canada and the United States diverge significantly—both in practice and in political culture. Americans, per capita, tend to be more entrepreneurial and property-rights focused, while Canadians are generally more trusting of government programs, often voting in line with social-democratic ideals.
This philosophical divide becomes especially evident when comparing Canada’s Canada Pension Plan (CPP) with the U.S. Social Security system. While both programs serve as retirement income pillars, their underlying structures—and the risks associated with them—are vastly different.
A Warning on CPP and Government Overreach
The CPP is mandatory, which makes it more akin to a tax than a personal retirement fund. However, the Canadian government doesn’t treat it that way. Instead, it often reports CPP-related assets on the balance sheet as leverage, even though growing public sector obligations make the plan increasingly a liability.
The Canadian federal government is running cash flow negative, relying heavily on money printing and borrowing. This means that while the CPP may not “default” in the traditional sense, its payouts in Canadian dollars will likely lose significant purchasing power—a stealth form of economic erosion via inflation.
In contrast, Americans are generally aware that their Social Security system operates on a pay-as-you-go model, which critics rightly call unsustainable. But that awareness allows Americans to plan accordingly, often by investing in private, cash-flowing assets independent of government programs. Canadians, meanwhile, continue to place disproportionate faith in official-sounding terms and government assurances.
The Danger of Inflation-Indexed Entitlements
The CPP pays out in Canadian dollars, and many of its benefits—like public sector wages—are indexed to inflation. This might sound protective on paper, but it can become dangerous if the public sector expands uncontrollably.
Imagine a scenario in which:
- A shrinking private sector is forced to fund ballooning public wages.
- The federal government can no longer pay its bills without borrowing from the Bank of Canada.
- Austerity is politically unpopular, so nothing is cut or restructured—even poorly performing government assets.
That’s a recipe for rampant inflation, which, paradoxically, acts as a deflationary force on the real economy. Even if pensions and wages are inflation-adjusted, they lag behind the actual cost-of-living increases, leaving citizens worse off over time.
Decentralization: A U.S. Advantage
In the U.S., if a state like Illinois or a city like Chicago mismanages its public pension plans, the failure is localized. Americans are mobile and entrepreneurial, and they’re not required to prop up other states’ mismanagement. In Canada, however, provincial failures become national liabilities, especially when provinces like Quebec rely on federal transfer payments to survive.
This centralized exposure is why Alberta, a net contributor province, is justified in considering opting out of the CPP. Not only could it potentially offer pensions in a more stable currency, but it could also shield its residents from nationalized fiscal irresponsibility.
Forced Austerity vs. Voluntary Reform
While some believe Canada can avoid the fate of other bloated welfare states, the truth is that forced austerity—often in the form of hyperinflation—may be unavoidable if reform is resisted. The U.S. may face pension shortfalls too, but thanks to a decentralized system and a stronger culture of entrepreneurship, those challenges may not result in the same monetary collapse.
Let’s now look at the 13 key differences between the CPP and U.S. Social Security that every Canadian—especially in Alberta—should understand:
- Structure of Funding
- CPP: Funded through mandatory contributions that are invested by the CPP Investment Board.
- U.S. Social Security: Operates on a pay-as-you-go basis, with current workers funding current retirees.
- Contribution Rates
- CPP: In 2024, 5.95% each from employers and employees, plus an additional 4% for high-income earners. Self-employed pay both sides.
- Social Security: 6.2% each from employers and employees (12.4% for the self-employed).
- Benefit Calculation
- CPP: Based on average earnings over a career, with some low-earning years dropped.
- Social Security: Based on the highest-earning 35 years.
- Survivor Benefits
- CPP: Limited survivor benefits, capped based on the contributor’s pension.
- Social Security: More comprehensive survivor benefits for spouses, children, and even ex-spouses.
- Disability Coverage
- CPP: Requires a “severe and prolonged” disability.
- Social Security: SSDI has stricter qualification but often broader eligibility.
- Early Retirement Penalties
- CPP: Reduces benefits by 0.6% per month before age 65 (up to 36% total at age 60).
- Social Security: Reductions vary based on months before full retirement age.
- Delayed Retirement Incentives
- CPP: Increases benefits by 0.7% per month after 65 (up to 42% by age 70).
- Social Security: Increases by about 0.67% per month (8% per year).
- Maximum Benefit Amounts (2024)
- CPP: $1,364.60/month at age 65.
- Social Security: $3,822/month at full retirement age.
- Taxation of Benefits
- CPP: Fully taxable as income in Canada.
- Social Security: Up to 85% may be taxed, depending on total income.
- International Agreements
- CPP: Has totalization agreements with many countries for benefit eligibility.
- Social Security: Also has totalization agreements, but with different terms and countries.
- Inflation Adjustments
- CPP: Adjusted annually using the Consumer Price Index (CPI).
- Social Security: Adjusted using CPI-W, sometimes resulting in higher COLA increases.
- Self-Employment Rules
- CPP: Self-employed pay both shares (11.9%) with no tax deduction.
- Social Security: Self-employed pay 12.4% but can deduct half on income taxes.
- Interaction with Other Programs
- CPP: Works alongside OAS and GIS for a multi-tiered retirement safety net.
- Social Security: More standalone; often supplemented with private savings or employer pensions.
Conclusion: A Call for Fiscal Independence
Canada’s centralized pension system may seem more stable on the surface, but it’s inherently riskier long term. As public sector debt balloons and economic productivity declines, the burden will fall on a shrinking group of private workers and entrepreneurs—unless structural reforms are made.
Alberta, and provinces like it, must consider exiting the CPP and building regionally accountable systems that reward productivity and preserve purchasing power.
And for every Canadian, this is a reminder: Don’t put blind trust in government promises. Study the differences. Invest wisely. And plan for volatility.
Consider making Jesus Christ your Lord and Savior today.
