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Transitions to Retirement: Determinants of Age of Social Security Take Up

Author

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  • Emile Tompa

Abstract

Prior to 1987, retirement benefits under the Canada Pension Plan (CPP) were payable only at age 65. Amendments to the CPP in 1987 allowed benefits to be claimed at any time between the ages of 60 and 70, with actuarial adjustments for early or late take up. The focus of this paper is the health and welfare implications of these flexible retirement provisions, but the paper also investigates the labour-market characteristics of individuals prior to exit. Characteristics such as health status, demographics, employment prospects, labour-force attachment, and income sources are investigated in order to develop a profile of individuals who take up early. The principal contribution of this paper is that it investigates the dynamics of transition from labour force to retirement in the Canadian context. Investigating the factors influencing the retirement decision has been a popular research agenda in the U.S. labour economics and public finance literature, but is not frequently addressed in the Canadian context due to the lack of longitudinal data sets. This paper employs a large longitudinal data set from Statistics Canada called the Longitudinal Administrative Databank (LAD) to examine the factors influencing the age at which an individual begins to draw benefits from the CPP. The LAD is a longitudinal sample of Canadians that spans the period from 1982 to 1994. The results of the analysis indicate that income amounts from various sources have a significant impact on take up, as do family characteristics and markers of health status. Unattached individuals are less likely to exit to retired-worker benefits at each age than are married individuals, though the larger the family size, the less likely is exit. It appears that early exit to retired-worker benefits is more likely for: 1) low labour income earners and individuals currently out of the labour force, 2) unemployed individuals, 3) individuals receiving a private pension, and 4) individuals with spouses who are retired. There is also a significant secular trend towards early exit. The probability of exit to disability benefits is more likely for: 1) low labour income earners, 2) individuals with a disability deduction in the current year, and 3) individuals who pay union or professional dues. Overall, it appears that many individuals who pick up retired-worker benefits prior to age 65 are individuals who have higher lifetime earnings, have already exited their career jobs, are receiving private pensions, and are making a joint retirement decision with their spouse. There are also some individuals who cycle through unemployment benefits prior to pick up. These individuals may be doing so voluntarily or involuntarily due to job displacement. For men, there is indication that lack of job prospects is an incentive for exit.

Suggested Citation

  • Emile Tompa, 1999. "Transitions to Retirement: Determinants of Age of Social Security Take Up," Social and Economic Dimensions of an Aging Population Research Papers 6, McMaster University.
  • Handle: RePEc:mcm:sedapp:6
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    Citations

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    Cited by:

    1. Sergi Jiménez-Martín & José M. Labeaga & Cristina Vilaplana Prieto, "undated". "A sequential model for older workers’ labor transitions after a health shock," Working Papers 2005-23, FEDEA.
    2. Sergi Jiménez-Martín & José M. Labeaga & Cristina Vilaplana Prieto, 2006. "A sequential model of older workers' labor force transitions after a health shock," Health Economics, John Wiley & Sons, Ltd., vol. 15(9), pages 1033-1054.
    3. Doreen Wing Han Au & Thomas F. Crossley & Martin Schellhorn, 2005. "The effect of health changes and long-term health on the work activity of older Canadians," Health Economics, John Wiley & Sons, Ltd., vol. 14(10), pages 999-1018.
    4. Frank T. Denton & Ross Finnie & Byron G. Spencer, 2011. "The Age Pattern of Retirement: A Comparison of Cohort Measures," Quantitative Studies in Economics and Population Research Reports 446, McMaster University.
    5. Frank T. Denton & Ross Finnie & Byron G. Spencer, 2009. "Patterns of Retirement as Reflected in Income Tax Records for Older Workers," Quantitative Studies in Economics and Population Research Reports 434, McMaster University.
    6. Frank T. Denton & Byron G. Spencer, 2008. "What is Retirement? A Review and Assessment of Alternative Concepts and Measures," Social and Economic Dimensions of an Aging Population Research Papers 231, McMaster University.
    7. K. Bruce Newbold, 2006. "Inter-provincial Migration of Income Among Canada's Older Population: 1996-2001," Social and Economic Dimensions of an Aging Population Research Papers 148, McMaster University.

    More about this item

    Keywords

    retirement; CPP;

    JEL classification:

    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies

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