Income Security and Stability During Retirement in Canada
AbstractPost-war policies and subsequent debates had two policy targets: reducing old-age poverty and enhancing income security for the “average worker” after retirement. While we know a lot about the first issue, the second has received less attention as a result of data limitations. We take advantage of unique longitudinal data based on Canadian tax files (the LAD) to examine income replacement rates of older Canadians relative to their economic status when they were in their mid-fifties. In 2005, the replacement income of retired individuals in their mid-seventies who were in the middle of the income distribution at age 55 (in the early 1980s) was between 70 and 80 percent of their previous incomes some 20 years earlier This figure is at the high end of the range (65 to 75 percent) that experts generally consider “adequate” for middle-income retirees to maintain their pre-retirement living standards. However, we also show that there is considerable variation in replacement rates. By age 75, about a quarter of middle-income persons had retirement incomes of less than 60 percent of the income they were receiving in their mid-fifties, a result of differential access to private pension income. We also ask whether income replacement rates have been rising or falling among more recent cohorts of retirees but find little change. Finally, we report results about the stability of incomes in the retirement years. We conclude that year to year instability in family income declines for both high and low income earners as they age, largely because of the stabilizing effect of public pension income sources.
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Bibliographic InfoPaper provided by McMaster University in its series Social and Economic Dimensions of an Aging Population Research Papers with number 236.
Length: 33 pages
Date of creation: Dec 2008
Date of revision:
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retirement; income security;
Find related papers by JEL classification:
- 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
- D60 - Microeconomics - - Welfare Economics - - - General
- D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
- H19 - Public Economics - - Structure and Scope of Government - - - Other
- H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
- I30 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General
This paper has been announced in the following NEP Reports:
- NEP-AGE-2009-01-24 (Economics of Ageing)
- NEP-ALL-2009-01-24 (All new papers)
- NEP-HIS-2009-01-24 (Business, Economic & Financial History)
- NEP-LAB-2009-01-24 (Labour Economics)
- NEP-PUB-2009-01-24 (Public Finance)
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- Milligan, Kevin, 2013. "Employer-provided pensions, incomes, and hardship in early transitions to retirement," CLSSRN working papers clsrn_admin-2013-24, Vancouver School of Economics, revised 29 Apr 2013.
- Kevin D. Moore & William Robson & Alexandre Laurin, 2010. "Canada’s Looming Retirement Challenge: Will Future Retirees Be Able to Maintain Their Living Standards upon Retirement?," C.D. Howe Institute Commentary, C.D. Howe Institute, issue 317, December.
- Finnie, Ross & Gray, David & Zhang, Yan, 2013. "The Receipt of Guaranteed Income Supplement (GIS) Status Among Canadian Seniors â€“ Incidence and Dynamics," CLSSRN working papers clsrn_admin-2013-22, Vancouver School of Economics, revised 29 Apr 2013.
- Frank T. Denton & Ross Finnie & Byron G. Spencer, 2009.
"Income Replacement in Retirement: Longitudinal Evidence from Income Tax Records,"
Social and Economic Dimensions of an Aging Population Research Papers
261, McMaster University.
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- James B. Davies, 2009. "The Effects of Asset Price Changes on Economic Security in Canada, 2005-09," University of Western Ontario, Economic Policy Research Institute Working Papers 20092, University of Western Ontario, Economic Policy Research Institute.
- Finnie, Ross & Spencer, Byron G., 2013. "How do the level and composition of income change after retirement? Evidence from the LAD," CLSSRN working papers clsrn_admin-2013-21, Vancouver School of Economics, revised 29 Apr 2013.
- Davies, James B. & Yu, Xiaoyu, 2013. "Impacts of Cyclical Downturns on the Third Pillar of the RIS and Policy Responses," CLSSRN working papers clsrn_admin-2013-20, Vancouver School of Economics, revised 29 Apr 2013.
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