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The Financial Circumstances of Elderly Canadians and the Implications for the Design of Canada’s Retirement Income System

In: The State of Economics in Canada: Festschrift in Honour of David Slater

Author

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  • Malcolm Hamilton

Abstract

It is well recognized that the incomes of the elderly are on average much lower than those of the non-elderly reflecting their limited participation in the labour market. But do the elderly have lower levels of economic well-being? Indeed, the financial circumstances of the elderly differ significantly from those of the non-elderly and these differences may compensate for lower income, increasing consumption potential relative to the non-elderly. In his paper, Malcolm Hamilton uses hitherto unexploited data from Statistics Canada’s Survey of Consumer Spending to examine the financial circumstances of the elderly and discusses the implications for the design of Canada’s retirement income system. Hamilton notes that there are five reasons why the unadjusted incomes of senior households should not be compared to those of younger households. Younger households often support children; devote a significant portion of their income to acquiring and financing consumer durables (cars, appliances, furniture) that seniors already possess; incur employment-related expenses (union dues, day-care, commuting costs, insurance); save part of their income for retirement; and pay higher taxes, including CPP and Employment Insurance (EI) premiums. Hamilton presents fascinating data for different types of households on uses of income by age group. He shows that the amount of income available for consumption, that is income after taxes, mortgage payments, savings, union dues, day-care and provision for children, is actually greater for fully retired senior couples than for prime age couples ($30,400 versus $28,600) even though average before-tax income of prime age couples is double that of senior couples. According to Hamilton, the data suggest that seniors need only around 50 per cent of their employment income to maintain their standard of living, not the 70 per cent that is commonly assumed in pension discussions. The implications of this finding for the design of the retirement system are many. Since government transfers replace 40 per cent of the income of the typical retiring Canadian, average Canadians will need little in the way of occupational pensions or retirement saving to live comfortably after 65. Most Canadians can retire in comfort if they eliminate debt and save a modest amount to supplement government pensions.

Suggested Citation

  • Malcolm Hamilton, 2001. "The Financial Circumstances of Elderly Canadians and the Implications for the Design of Canada’s Retirement Income System," The State of Economics in Canada: Festschrift in Honour of David Slater, in: Patrick Grady & Andrew Sharpe (ed.),The State of Economics in Canada: Festschrift in Honour of David Slater, pages 225-253, Centre for the Study of Living Standards.
  • Handle: RePEc:sls:secfds:10
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    File URL: http://www.csls.ca/events/slt01/hamilton.pdf
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    References listed on IDEAS

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    1. Myles, John, 2000. "The Maturation of Canada's Retirement Income System: Income Levels, Income Inequality and Low Income Among the Elderly," Analytical Studies Branch Research Paper Series 2000147e, Statistics Canada, Analytical Studies Branch.
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    Cited by:

    1. Forsyth, Peter A., 2022. "Short term decumulation strategies for underspending retirees," Insurance: Mathematics and Economics, Elsevier, vol. 102(C), pages 56-74.

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    More about this item

    Keywords

    Elderly; Canada; Pensions; Survey of Consumer Spending; Seniors; Spending; Savings;
    All these keywords.

    JEL classification:

    • O51 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - U.S.; Canada
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • J14 - Labor and Demographic Economics - - Demographic Economics - - - Economics of the Elderly; Economics of the Handicapped; Non-Labor Market Discrimination
    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory

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