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Retirement Incentives and Decisions across the Income Distribution: Evidence in Canada

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  • Kevin S. Milligan
  • Tammy Schirle

Abstract

We evaluate the retirement incentives embedded in Canada’s retirement income system with attention to where individuals are located in the income distribution. We find that larger social security benefits are available to individuals with lower earnings in their work history because of the benefit income tests, but those from the top of the income distribution tend to enjoy longer lives over which they may receive benefits. Overall, we see greater Social Security Wealth among individuals from lower deciles. The implicit tax rates on continued work tend to be higher for workers from lower-earning deciles. Considering changes to actuarial adjustments associated with early pension take up, these implicit tax rates on work at older ages fell substantially after 2011. Our regression estimates confirm the importance of incentives on retirement behavior, with substantially larger effects for individuals in lower deciles. These effects are greater for women than men. In simulations, we show that changes to the actuarial adjustment had some impact on retirement rates by lowering the implicit tax on work. The overall redistributive effect of these induced retirement changes was fairly small, however, as the actuarial adjustments brought the system closer to actuarial fairness.

Suggested Citation

  • Kevin S. Milligan & Tammy Schirle, 2024. "Retirement Incentives and Decisions across the Income Distribution: Evidence in Canada," NBER Working Papers 33069, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:33069
    Note: AG
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    1. Michael Baker & Jonathan Gruber & Kevin Milligan, 2003. "The retirement incentive effects of Canada's Income Security programs," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 36(2), pages 261-290, May.
    2. Kevin Milligan & Tammy Schirle, 2021. "The evolution of longevity: Evidence from Canada," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 54(1), pages 164-192, February.
    3. Kevin Milligan, 2008. "The Evolution of Elderly Poverty in Canada," Canadian Public Policy, University of Toronto Press, vol. 34(s1), pages 79-94, November.
    4. Tammy Schirle, 2013. "Senior Poverty in Canada: A Decomposition Analysis," Canadian Public Policy, University of Toronto Press, vol. 39(4), pages 517-540, December.
    5. Kevin Milligan & Tammy Schirle, 2023. "Retirement Decisions and Retirement Incentives: New Evidence from Canada," NBER Chapters, in: Social Security Programs and Retirement around the World: The Effects of Reforms on Retirement Behavior, pages 67-91, National Bureau of Economic Research, Inc.
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    More about this item

    JEL classification:

    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • 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

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