Hostname: page-component-586b7cd67f-dlnhk Total loading time: 0 Render date: 2024-11-25T21:07:02.343Z Has data issue: false hasContentIssue false
  • English
  • Français

Income Replacement in Retirement: Longitudinal Evidence from Income Tax Records

Published online by Cambridge University Press:  07 November 2011

Frank T. Denton ,
Ross Finnie  and
Byron G. Spencer
Frank T. Denton
Affiliation:
Department of Economics, McMaster University
Ross Finnie
Affiliation:
Graduate School of Public and International Affairs, University of Ottawa
Byron G. Spencer*
Affiliation:
Department of Economics, McMaster University
*
*Correspondence and requests for offprints should be sent to / La correspondance et les demandes de tirés-à-part doivent être adressées à: Byron G. Spencer, Ph.D. McMaster University Department of Economics, KTH-426 Hamilton, ON L8S 4M4 ([email protected])
Get access Rights & Permissions [Opens in a new window]

Abstract

Applying an employment-income-based procedure for determining retirement, we analysed a large longitudinal data file of Canadian personal income tax returns for individuals to determine who has retired and to assess how successful they are in maintaining their incomes after retirement. The methodological approach may be of interest for possible application in other countries that have suitable data. Our main conclusions are as follows. First, in the two years immediately after retirement, the after-tax income replacement ratios average about two thirds when calculated across all ages of retirement. Second, the ratios tend to increase with the age of retirement. Third, the ratios increase with years in retirement, at least in the first few years. Finally, income replacement ratios are highest in the lowest income quartile and generally decline as income increases; within each quartile, the replacement ratios are higher for those who retired later than for those who retired earlier.

Résumé

Nous analysons un grand fichier de données longitudinales des déclarations de revenus pour les individus canadiens, en appliquant une procédure de détermination de la retraite, qui est basé sur le revenu d’emploi, afin de évaluer qui se sont retirés et comment ils réussissent à maintenir leurs revenus après la retraite. Cette approche méthodologique peut être d’interêt pour une application éventuelle dans d’autres pays qui ont des données appropriées. Nos principales conclusions sont les suivants. En premier, dans les deux ans qui suivent le départ en retraite, les ratios de remplacement du revenu après taxes atteignent en moyenne environ deux- tiers lorsqu’ils sont calculés sur tous les âges de départ en retraite. Deuxièmement, les ratios ont tendance à augmenter avec l’âge de la retraite. Troisièmement, les ratios augmentent avec les anneés de la retraite, du moins dans les premières années. Enfin, les ratios de remplacement du revenu sont les plus élevés pour le quartile des revenu les plus bas et diminuent généralement à mesure que le revenu augmente ; avec chaque quartile, les taux de remplacement augmentent davantage pour ceux qui ont pris leur retraite plus tard que pour ceux qui l’ont prise plus tôt.

Keywords

vieillissementremplacement de revenuretraitedonnées fiscales longitudinalesagingincome replacementretirementlongitudinal tax data
Type
Articles
Information
Canadian Journal on Aging / La Revue canadienne du vieillissement , Volume 30 , Issue 4 , December 2011 , pp. 523 - 539
Copyright
Copyright © Canadian Association on Gerontology 2011

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Alan, S., Atalay, K., & Crossley, T.F. (2008). The adequacy of retirement savings: Subjective survey reports by retired Canadians. Canadian Public Policy, XXXIV(Suppl.), S95–S118.CrossRefGoogle Scholar
Ambachtsheer, K. (2008). The Canada Supplementary Pension Plan (CSPP): Towards an adequate, affordable pension for all Canadians. Toronto, Ontario, Canada: C D Howe Institute Commentary, No. 265.Google Scholar
Banks, J., Blundell, R., & Tanner, S. (1998). Is there a retirement-savings puzzle? American Economic Review, 88(4), 769–788.Google Scholar
Benartzi, S., & Thaler, R.H. (2007). Heuristics and biases in retirement savings behaviour. Journal of Economic Perspectives, 21(3), 223–238.CrossRefGoogle Scholar
Bernheim, D., Skinner, J., & Weinberg, S. (2001). What accounts for the variation in retirement wealth among U.S. households? American Economic Review, 91(4), 832–857.CrossRefGoogle Scholar
Denton, F.T., Finnie, R., & Spencer, B.G. (2009). Patterns of retirement as reflected in income tax records for older workers (Research Paper No. 257). Hamilton, ON: McMaster University Research Program on Social and Economic Dimensions of an Aging Population (SEDAP).Google Scholar
Denton, F.T., Finnie, R., & Spencer, B.G. (2011). The age pattern of retirement: A comparison of cohort measures (Research Paper No. 283). Hamilton, ON: McMaster University Research Program on Social and Economic Dimensions of an Aging Population (SEDAP).Google Scholar
Denton, F.T., Mountain, D., & Spencer, B.G. (2006). Age, retirement, and expenditure patterns: An econometric study of older households. Atlantic Economic Journal, 34(4), 421–434.CrossRefGoogle Scholar
Denton, F.T., & Spencer, B.G. (2009). What is retirement? A review and assessment of alternative concepts and measures. Canadian Journal on Aging, 28(1), 63–76.CrossRefGoogle Scholar
Gough, O., Adami, R., & Waters, J. (2008). The effects of age and income on retirement decisions: A comparative analysis between Italy and the UK. Pensions, 13, 167–175.CrossRefGoogle Scholar
Gower, D. (1998). Income transition upon retirement. Perspectives on Labour and Income, (Winter) 18-23 (catalogue no 75-001-XPE). Ottawa, Ontario, Canada: Statistics Canada.Google Scholar
Hurd, M.D., & Rohwedder, S. (2006). Alternative measures of replacement rates (Research Paper No. WP 2006-132). Michigan Retirement Research Center. Ann Arbor, Michigan, U.S.A.: University of Michigan.Google Scholar
Hurst, E. (2008). The retirement of a consumption puzzle. NBER Working Paper No. 13789. Cambridge, Massachusetts, U.S.A: National Bureau of Economic Research.CrossRefGoogle Scholar
LaRochelle-Côté, S., Myles, J., & Picot, G. (2008). Income security and stability during retirement in Canada. In M.G. Abbott, C.M. Beach, R.W. Boadway, & J.G. MacKinnon (Eds), Retirement policy issues in Canada. McGill-Queen’s University Press. Also available as Research Paper No. 236. Hamilton, Ontario, Canada: McMaster University Research Program on Social and Economic Dimensions of an Aging Population (SEDAP).Google Scholar
Modigliani, F., & Brumberg, R.H. (1954). Utility analysis and the consumption function: An interpretation of cross-section data. In K.K. Kurihara (Ed.), Post-Keynesian economics (pp. 388–426). New Brunswick, NJ: Rutgers University Press.Google Scholar
National Center for Education Statistics. (2001). International comparisons in education, Education Indicators: An International Perspective, Education and the Labor Force—Participation in Education, Labor Force Participation Rates. US Department of Education. Retrieved March 22, 2010 fromhttp://nces.ed.gov/surveys/international/IntlIndicators/pdf/Labor_Force_Participation_Rates_2001.pdfGoogle Scholar
Organization for Economic Cooperation and Development (2003). Education at a glance: OECD indicators, Table A.12.1. Retrieved March 22, 2010 fromhttp://www.oecd.org/document/37/0,3343,en_2649_39263238_13634484_1_1_1_1,00.htmlGoogle Scholar
Ostrovsky, Y., & Schellenberg, G. (2009). Pension coverage, retirement status, and earnings replacement rates among a cohort of Canadian seniors. (catalogue no. 11F0019M). Analytical Studies Branch Research Paper Series No. 321. Ottawa, Ontario, Canada: Statistics Canada.Google Scholar
Saez, E., & Veall, M. (2005). The evolution of high incomes in North America: Lessons from the Canadian experience. American Economic Review, 95(3), 831–849.CrossRefGoogle Scholar
Schulz, J.H. (1992). The economics of aging (5th ed.). New York: Auburn House.Google Scholar
Schwerdt, G. (2005). Why does consumption fall at retirement? Evidence from Germany. Economic Letters, 89, 300–305.CrossRefGoogle Scholar
Skinner, J. (2007). Are you sure you’re saving enough for retirement? Journal of Economic Perspectives, 21(3), 59–80.CrossRefGoogle Scholar
Smith, J.P. (2003). Trends and projections in income replacement during retirement. Journal of Labour Economics, 21(4), 755–781.CrossRefGoogle Scholar
Statistics Canada. (2006) Longitudinal Administrative Databank. Retreived September 12, 2011, fromhttp://www.statcan.gc.ca/daily-quotidien/110119/dq110119g-eng.htm. Ottawa, Ontario, Canada: Statistics Canada.Google Scholar