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Saving Before and After Retirement: A Study of Canadian Couples, 1969-1992


  • Xiaofen Lin


This essay examines issues of life-cycle savings of Canadian elderly married-couple households just before and after retirement within both a pooled cross-sectional and a synthetic longitudinal framework. We investigate whether the saving behaviour of elderly couples appears to be motivated by life-cycle factors, how the growth of our economy has affected lifetime income, consumption and savings across generations, and, because we use repeated cross-sectional data, the 1969-1992 FAMEX, how to correct the age profiles distorted by the presence of differential mortality between the rich and the poor. We intend to provide evidence both for the empirical justification of the standard life-cycle model and for policy makers concerned with various social programs for the elderly in Canada. The pooled cross-section results on overall median age pattern indicate that, though income and consumption are both decreasing with age, the decrease in consumption is relatively smooth while income falls considerably at retirement age. Savings and saving rates thus exhibit a distinct pattern: they drop sharply at retirement age, but rise again thereafter. When households are grouped into four types according to retirement status of both spouses, it is clear that this saving dip is found only among both-retired couples. For couples with at least one spouse working, saving rates remain high throughout the age span. It is also found that controlling for income, households with both spouses retired have the highest saving rate among all types. In the cohort analysis, the age profiles show that income and consumption remain at about the same level or even increase with age after retirement. There are significant cohort effects in both income and consumption in that younger cohorts have higher income and higher consumption than older cohorts. Moreover, these effects are about the same for both variables. However, the age profile for the saving rate is very similar to those based on pooled cross-sections: a sharp drop at retirement, a quick rise thereafter. We find no cohort effects on saving rates in our sample. This is the core reason that saving profiles are the same in both cross-section and cohort analysis. Synthetic cohort analysis, however, is biased by the fact that the poorer tend to drop out from the sample earlier because of higher mortality. Based on the idea that decreasing quantiles with age should be used instead of the straight median for every age, a new method is developed to correct the median profiles for differential mortality. Two cases, the extreme case and the normal case, are illustrated in detail. Using population survival rates from the Canadian Life Table and the top 20% (in wealth distribution) survival rates from a Canadian study due to Wolfson, et al., we are able to estimate the varying quantiles and to correct the age profiles from the cohort studies. Differential mortality does make a difference in estimated lifetime behaviour. The corrected income profile is fairly constant after retirement. Consumption decreases throughout the age range. Saving rates now are lower and flatter after retirement. However, there is no sign of a further drop in saving rates after an initial drop at retirement age. If anything, we still see a tendency for the saving rates to rise after retirement.

Suggested Citation

  • Xiaofen Lin, 1997. "Saving Before and After Retirement: A Study of Canadian Couples, 1969-1992," Independence and Economic Security of the Older Population Research Papers 13, McMaster University.
  • Handle: RePEc:mcm:iesopp:13

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    References listed on IDEAS

    1. Martin Browning & Annamaria Lusardi, 1996. "Household Saving: Micro Theories and Micro Facts," Journal of Economic Literature, American Economic Association, vol. 34(4), pages 1797-1855, December.
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    3. Victor R. Fuchs, 1984. ""Though Much is Taken" -- Reflections on Aging, Health, and Medical Care," NBER Working Papers 1269, National Bureau of Economic Research, Inc.
    4. Shorrocks, A F, 1975. "The Age-Wealth Relationship: A Cross-Section and Cohort Analysis," The Review of Economics and Statistics, MIT Press, vol. 57(2), pages 155-163, May.
    5. Hamermesh, Daniel S, 1984. "Consumption during Retirement: The Missing Link in the Life Cycle," The Review of Economics and Statistics, MIT Press, vol. 66(1), pages 1-7, February.
    6. Orazio P. Attanasio, 1998. "Cohort Analysis of Saving Behavior by U.S. Households," Journal of Human Resources, University of Wisconsin Press, vol. 33(3), pages 575-609.
    7. Sheldon Danziger & Jacques Van Der Gaag & Eugene Smolensky & Michael K. Taussig, 1983. "The Life-Cycle Hypothesis and the Consumption Behavior of the Elderly," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 5(2), pages 208-227, January.
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    10. Amanda Gosling & Stephen Machin & Costas Meghir, 2000. "The Changing Distribution of Male Wages in the U.K," Review of Economic Studies, Oxford University Press, vol. 67(4), pages 635-666.
    11. Skinner, Jonathan, 1988. "Risky income, life cycle consumption, and precautionary savings," Journal of Monetary Economics, Elsevier, vol. 22(2), pages 237-255, September.
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    13. Diamond, P. A. & Hausman, J. A., 1984. "Individual retirement and savings behavior," Journal of Public Economics, Elsevier, vol. 23(1-2), pages 81-114.
    14. Michael D. Hurd, 1992. "Wealth Depletion and Life-Cycle Consumption by the Elderly," NBER Chapters,in: Topics in the Economics of Aging, pages 135-162 National Bureau of Economic Research, Inc.
    15. James M. Poterba, 1994. "Introduction to "International Comparisons of Household Saving"," NBER Chapters,in: International Comparisons of Household Saving, pages 1-10 National Bureau of Economic Research, Inc.
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    Cited by:

    1. Frank T. Denton & Byron G. Spencer, 1999. "Population Aging and Its Costs: A Survey of the Issues and Evidence," Department of Economics Working Papers 1999-03, McMaster University.
    2. Rebecca Smith & Lonnie Magee & Leslie Robb & John Burbidge, 1997. "The Independence and Economic Security of Older Women Living Alone," Independence and Economic Security of the Older Population Research Papers 22, McMaster University.

    More about this item


    life-cycle; saving; income; retirement;

    JEL classification:

    • D10 - Microeconomics - - Household Behavior - - - General
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making

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