Income Adequacy in Retirement: Accounting for the Annuitized Value of Wealth in Canada
Abstract
Discussions of pension adequacy for elderly Canadians have used the rate at which income falls with age; the income replacement rate or the ratio of post-retirement income to pre-retirement income. Use of income streams to assess post-retirement welfare requires a standard against which adequacy of the replacement rates can be judged. Because some expenditures (for example, work-related expenses) can be expected to fall after retirement, a declining income stream does not necessarily signal financial problems for seniors. More importantly, income as normally measured captures only part of what is available to seniors if households possess assets, which in retirement are not being used to generate measured income. This paper uses a different metric, referred to as "potential" income. Potential income is the sum of realized income and the income that could be realized from owned assets such as mutual funds and housing. Households prepare for retirement by saving and borrowing and investing the proceeds. The assets accumulated over a lifetime may or may not be drawn down in later years. If they are not, income streams underestimate the "potential" income available to support retirement. This paper takes this potential into account when comparing the pre- and post-retirement financial status of Canadian households.Download Info
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Paper provided by Statistics Canada, Analytical Studies Branch in its series Economic Analysis (EA) Research Paper Series with number 2011074e.Length:
Date of creation: 21 Nov 2011
Date of revision:
Handle: RePEc:stc:stcp5e:2011074e
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Web page: http://www.statcan.gc.ca
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Keywords: Families; households and housing; Income; pensions; spending and wealth; Seniors; Household assets; debts and wealth; Household; family and personal income; Income; pensions and wealth;This paper has been announced in the following NEP Reports:
- NEP-ACC-2011-11-28 (Accounting & Auditing)
- NEP-AGE-2011-11-28 (Economics of Ageing)
- NEP-ALL-2011-11-28 (All new papers)
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