Canadian Retirement Security: A New Reality of Low Returns

Using a population micro-simulation model, we compare the financial security of Canadian seniors in three scenarios: if Canadian financial markets (1) never experienced the financial crisis of 2008 (i.e. continued on their pre-2008 path); (2) experienced the crisis and recover in five years; or (3) enter a new long-term environment of depressed stock market growth and continued low interest rates. If recovery occurs, we project that the long-term effects of the financial crisis on retirement prospects will be the most felt by older workers now near retirement. If low interest rates continue, however, more severe repercussions await younger workers. Upper-income Canadians are affected the most by continuing low interest rates owing to their relatively greater holding of financial assets. Nevertheless, a long-term low interest rate environment will cause an additional 2.3% of Canadian seniors to experience poverty. Our results underline the vital role of the Canadian social pension program in both protecting poorer Canadian seniors from destitution, and in also shielding the lower, middle and even upper-income Canadian elderly population from financial market risk.