1 The Wealth and Income Position of the Retirement and Pre-Retirement Population René Morissette and Garnett Picot Statistics Canada

2 I. Wealth holdings of retirees and near-retirees, Data: Assets and Debts Survey of 1984 : no info on RPPs Surveys of Financial Security of 1999 and 2005: include RPPs II. Income security & stability during retirement,

3 … Between 1984 and the late 1990s, the percentage of individuals with an RPP changed little among RPP / POPULATION, %27% %36% %35%

4 The wealth of Canadians has grown substantially over the last two decades

5 Median wealth grew sharply among 55+ but not so among 25-54

6 Among 65+, median wealth grew in the middle and the top of the wealth distribution and stagnated at the bottom

7 Among the 65+, much of the wealth growth in the middle quintile was driven by increases in housing wealth

8 The age-RPP coverage profile of young men shifted downwards

9 While young women also experienced a downward shift in their age- coverage profile, the coverage of cohorts entering the labour market in 1996 or 2000 converged to that of the 1986 cohort within a decade

10 SUMMARY u 1. Cohorts of retirees have generally seen their wealth holdings increase since the mid-1980s… … except those in the bottom quintile u 2. Among younger age groups, a) wealth holdings have not grown as much + b) pension coverage shifted downwards u == might be cause for concern

11 Income Security and Stability During Retirement by S. LaRochelle-Côté J. Myles G. Picot Business and Labour Market Analysis Division Statistics Canada - Preliminary Results -

12 Introduction u Generally speaking, pension system effective re: poverty prevention, (Myles, 2000; Baldwin, 2006). Less known re: maintenance of pre-retirement lifestyles u Longitudinal analysis of post-retirement outcomes scarce… data issues u Focus on replacement rates –Income during post-retirement years relative to that at age 55 u U.S. research (Smith 2003) –Replacement rates change over retirement years –They vary across the income distribution –Pension system produced high replacement rates for poor individuals

13 For Canada, –Focus on economic well-being, hence use adult equivalent adjusted family income of each individual We ask: –To what extent are income levels and replacement rates maintained as individuals age? Do replacement rates vary across the income distribution? –Are recent retirement cohorts better or worse off than previous ones? –Does income stability vary over retirement years?

14 Data u Longitudinal administrative data set (LAD) u 20% sample of T1 tax filers u Linked across year, 1982 to 2005 (max. 23 years) u Prior to 1992, some issues with income reporting among low- income families… hence restrict cohorts to those earning >$10,000 at age 55 u Focus on individuals with significant labour market attainment at age 55

15 Incomes fall for individuals in top quintile (at age 55), but remains stable for individuals in the bottom. Income inequality falls within cohorts through retirement years u At 55, income at top was 3.8 times that at bottom; by age 75, 2.9 times

16 Replacement rates fall at top of distribution but remain around 1.0 at bottom

17 Shares of total income, by income source cohort - At age 6575 Bottom quintile Family earnings34%12% Private pensions 15%18% Investment and capital gains 3% 9% OAS/GIS/CPP 32%60% Top quintile Family earnings32%14% Private pensions 24%40% Investment and capital gains33%28% OAS/GIS/CPP 11%18%

18 Significant distribution of replacement rates within quintiles, 1983 cohort At age Bottom quintile Replacement rate <0.6 7% 2% 0.6 to %18% 0.8 to %22%29% 1 to 1.533%35% >1.522%16% Middle quintile Replacement rate <0.618 %25% 0.6 to %37% 0.8 to %22%22% >1.0 29%17%

19 What differentiates low from high replacement rates - Given same income at age 55 - Family income - Middle quintile – 1983 cohort Low = Replacement rate <0.6 (approx. 25% of individuals) High = Replacement rate >1.0 (approx. 17% of individuals) % Share of income difference between low and high PrivateInvestment AgeEarningspensionsand capital gains 65 57% 14% 33% 70 40% 34% 27% 75 29% 45% 27%

20 More recent retirement cohorts have higher income levels, largely because of higher (family) earnings and private pensions, but replacement rates have changed little

21 Family income instability falls over retirement years, and instability gap between rich and poor disappears u Higher instability in market earnings among bottom tertile during 50s and early 60s u As more stable pension sources become larger share of income, instability declines, particularly among poorer families

22 Summary u Replacement rates vary across the income distribution –Median replacement rate around 0.75 to 0.8 –Replacement rate of around 1.0 at bottom of distribution (public pensions) –Replacement rates at top much lower –Income inequality falls as cohorts age u But in middle quintile, one quarter have replacement rates below 0.6, in bottom quintile, 20% below 0.8 u More recent retirement cohorts have higher income levels than their predecessors, but similar replacement rates –But private pension coverage has been falling among younger workers u Poorer individuals have higher levels of income instability than richer early in retirement –As cohorts age, stable public pensions lead to more stability at bottom, and rich-poor gap in income in stability disappears