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American FIRE vs Canadian FIRE


Images by Ali Tawfiq (top) & Frank McKenna (bottom) on Unsplash

If your FIRE-podcast listening experience has been anything like mine, you've probably learned far too much about how great America is to live for next to nothing, invest with low MERs and buy real estate in. And yet you've probably also heard that they have over a billion different account types making retirement options very complex and of course the elephant in the room: healthcare. Today, we're going to compare these two countries FIRE and see who has an edge on one another. It will of course be a completely biased article since I'm Canadian and I want my country to win :P Okay let's see how we do.
  • Cost of Living (COL)
    • In the US, COL ends up being cheaper for a number of consumer staples, food and gasoline being the two prime examples. Simply put, goods just cost a lot less in the US and us Canadians see the difference everytime we travel south of the border. Even though everything from iPads to cars to eggs to toilet paper is cheaper in the US, Canadians can still buy so many of these goods for cheap. Take food for example, my personal food budget per month (per person) is $150. That's not breaking the bank by any means Canadians with an eye for value and credit card rewards should be able to achieve a food budget that's under $200/month/person.
    • Since we FIREwalkers are optimizers at every turn and frugal by nature (or choice), we get to reap the benefits of simply spending less and therefore reducing this issue. 
  • Healthcare
    • In Canada, we enjoy the luxurious and mentally-freeing security of free healthcare. Did you get injured in your car? Free. Gonna have a baby? Free. Chop your arm off because you felt like it? You better believe that was FREE! While there are still ways to go in our healthcare system it is undeniable that when reaching for FIRE that a Canadian has a clear advantage over our American counterpart because FIRE unlocks the ability for optional work. Americans may be tied to their job because they cannot fathom living without healthcare insurance provided by an employer and any American with an underlying health condition is much more likely to never reap the ultimate benefit of chasing FIRE because of this. Canadians do not need to prove any type of income to receive healthcare.
    • The same goes for parental leave. In Canada, Employment Insurance covers all individuals who wish to take time off from work and be at home with their kids (up to 18 months). There are all sorts of rules and hours need to be accrued to take advantage of this program but unless an American works for a company that offers this benefit, they are shit out of luck - the US government offers no such program. Accomplishing FIRE with kids in America has become somewhat a controversial topic down there but in Canada, it's kinda like, whatever?
  • The Cost of MERs
    • VTSAX (or VTI) in the US costs just 0.03% whereas our total market stock index VCN costs 0.06%! What a rip! Just kidding, the 3 basis points is so negligible that I would be overcome with hysterical laughter if somebody actually wasted brain cells distraught by the cost difference (FYI for every one million dollars invested, VCN costs $300/year more - and I congratulate you if you manage to get one million bucks into VCN while being globally diversified!).
    • The problem above isn't VCN's MER but the fact that VCN isn't well diversified whatsoever. While I'm a huge believer in the Canadian stock market and I think the FIRE crowd in Canada is too quick to lynch Canadians for home country bias there is much to be said about expanding our investments globally to reduce the obvious risks of investing all-Canadian. If we start to buy VEQT as I mentioned when translating VTSAX for Canadians, we start to see MERs as high as 0.50% due to foreign withholding taxes! While this is certainly cheaper than the status-quo of big bank mutual funds, that is a far cry from the 0.03% Americans can achieve by simply buying VTSAX and getting a USD product that's well diversified. It's amazing home-turf advantage and as you can tell, I'm quite jealous! VEQT's cost at one million dollars is $5k/year. Not nearly as good but I do want to emphasize that it takes a while to get to million so the cost of MERs only really becomes a problem once you're close to hitting FIRE and by then I'm sure you'll be savvy enough to seek out the advise of a fee-only financial planner who can lay out a strategy to reduce both taxes and MERs.
  • Real Estate
    • Here's another category the Americans have us completely beaten. The price of real estate in both countries can be downright expensive in the big cities but America has tonnes of spread out smaller urban cities with much cheaper real estate. While housing prices do come down the farther away you are from Vancouver or Toronto, it's hard to justify a home so far away from where you work because the commute cost isn't usually worth it to the jobs most found near the expensive real estate. Location independent jobs will be able to sneak around this massive expense but a lot of Canadians I meet still want to get into the home ownership scheme value and own for a LOT of money.
    • In my opinion, spending upwards of $300 or $400k on a home is already a lot of money to be tied down in a box with four walls and a roof but of course renting out a basement apartment for your family of 5 is probably not going to work. Like it or not we have an expensive real estate market that hasn't corrected since the late 80's / early 90's whereas our American counterparts "suffered" a massive correction in 2008 / 2009. I put "suffered" in brackets because for FIREwalkers this became a freaking goldmine of opportunities to become landlords and a LOT of the American personalities who preach FIRE have owned property besides their main home. In Canada, the same is not possible without a shit tonne of capital to begin with. 
  • The Smith Maneuver
    • While I am by no means a tax expert on US or Canadians tax code, this appears to be one strategy we have over the Americans. Take that you Yanks! While I'm sure Americans can deduct interest off of loans for investment purposes it doesn't seem possible if that loan is secured to their primary residence. That's a no-no and would omit them from claiming their house as detailed in this MMM article about the very thing. It seems at most they're allowed to borrow from their HELOC to invest a rental property whereas Canadians can borrow from their HELOC to invest in any investment that will reasonably produce income. By converting non-deductible debt into a leveraged stock portfolio, Canadians have access to a very lucrative strategy.
    • While this is a higher-risk-tolerance-needed strategy and not all that common to Canadians (even FIREwalkers), the American FIRE personalities would be tripping over themselves signing up for this if they could because the risk is lower (due to lower real estate prices) and the long term appreciation and tax benefits are grand. It's a no-brainer to the mathematically inclined robots in our movement.
  • No Converting Retirement Accounts
    • Canadians have very easy to remember retirement accounts. We have the TFSA and the RRSP. Wow, good luck retaining all that. Okay in all seriousness there are private pensions, CPP and OAS and of course LIRA's and RRSP's that eventually convert into income funds when you're already CPP eligible. However, our Americans get to do something really funky - they can effectively convert their RRSPs to TFSA's via a "conversion ladder" that takes 5 years. I'm not a whizz on how this is done anymore because once I realised Canadians have no use retaining this information I dropped it from my brain immediately but it's suffice to say an efficient strategy that unlocks tax deferred accounts into tax free accounts without any penalties.
    • Since FIRE comes with an obsession of financial planning, Canadians are often left wanting more when it comes to our retirement accounts. They're just so... simple? Perhaps too simple? It's not necessarily a bad thing but I myself wouldn't mind a little tax loophole allowing my TFSA contributions to be funded by my RRSP without any penalties. I'd simply move my intended TFSA contributions to the RRSP and keep converting as long as that worked and then beef up my taxable accounts while my TFSA gets more and more bloated. A Canadian can dream....
Summary:
  1. COL - Not a big deal since FIREwalkers spend less anyways but technicallyAmerica is better
  2. Healthcare - Not even a toss up, much better to be Canadian in terms of FIRE - Canada is better
  3. Highers MERs - Not really an issue until you have a lot of money invested. Most Canadians shouldn't even blink an eye since we need global diversification anyways and by the time it matters to reduce costs, we should plan on seeing a fee-only financial planner for assistance anywaysAmerica is better
  4. Real Estate - Canada's housing market is an expensive beast. Unless you're a real estate agent, we'd all benefit from lower US pricesAmerica is better
  5. The Smith Maneuver - Doesn't seem to be available to Americans, suckas!Canada is better
  6. No Converting Retirement Accounts - Canadians simply don't have anything at all like thisAmerica is better

While it seems Americans have won the FIRE war I'm not so sure that's an automatic decision for most. Your health and family planning really could depend which country you'd rather hypothetically seek FIRE in. I'm incredibly bothered by the fact that my FIRE plans could be blown to pieces because of cancer or my kid being born with a health problem that my workplace (if I still had one) couldn't cover. I must admit it is quintessentially Canadian to squirm leaving the safety net of our healthcare system but I also believe it's the most correct system to have. I firmly believe nobody should be financially penalized for health-related issues outside of their control. 

Alright, there ya have it! I'm purposely not touching education or job opportunities but if you guys have any comments on that leave 'em below. Thanks for reading!

Ryan Myricks

You can email me here: canadianfire1@gmail.com (I respond to everybody)

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