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The Wealth and Income Position of the Retirement and Pre-Retirement Population René Morissette and Garnett Picot Statistics Canada. I. Wealth holdings of retirees and near-retirees, 1984-2005 Data : Assets and Debts Survey of 1984 : no info on RPPs - PowerPoint PPT Presentation
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1
The Wealth and Income Position of the Retirement and Pre-Retirement
Population
René Morissette and Garnett PicotStatistics Canada
2
I. Wealth holdings of retirees and near-retirees, 1984-2005
Data:Assets and Debts Survey of 1984 : no info on RPPsSurveys of Financial Security of 1999 and 2005: include RPPs
II. Income security & stability during retirement, 1983-2004
3
… Between 1984 and the late 1990s, the percentage of individuals with an RPP changed little among 35-54
RPP / POPULATION, 1984-1998
1984 1998
25-34 32% 27%
35-44 37% 36%45-54 32% 35%
4
The wealth of Canadians has grown substantially over the last two decades
Median and average wealth, 1984-2005
Excluding RPPs Including RPPs
0
50,000
100,000
150,000
200,000
250,000
300,000
350,000
400,000
medians averages
1984
1999
2005
+26%
+70%
2005 $
0
50,000
100,000
150,000
200,000
250,000
300,000
350,000
400,000
medians averages
1999
2005
2005 $
5
Median wealth grew sharply among 55+ but not so among 25-54
Median wealth by age of major income recipientExcluding RPPs Including RPPs
0
50,000
100,000
150,000
200,000
250,000
300,000
350,000
400,000
450,000
25-34 35-44 45-54 55-64 65+
1984 1999 2005
2005 $
0
50,000
100,000
150,000
200,000
250,000
300,000
350,000
400,000
450,000
25-34 35-44 45-54 55-64 65+
1999 2005
2005 $
6
Among 65+, median wealth grew in the middle and the top of the wealth distribution and stagnated at the bottom
Median wealth (excluding RPPs) by quintile, 65+,1984-2005
0
100,000
200,000
300,000
400,000
500,000
600,000
700,000
Bottom Middle Top
1984
1999
2005
2005 $
7
Among the 65+, much of the wealth growth in the middle quintile was driven by increases in housing wealth
Median wealth (excluding RPPs) by quintile, 65+,1984-2005
0
100,000
200,000
300,000
400,000
500,000
600,000
700,000
Q1 Q1 Q1 Q3 Q3 Q3 Q5 Q5 Q5
84 99 05 84 99 05 84 99 05
Wealth Excluding hw and be
2005 $
8
The age-RPP coverage profile of young men shifted downwards
% of men 25-29 contributing to RPPs, by cohort [1986-2004]
0.15
0.20
0.25
0.30
0.35
0.40
25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43age
cohort aged 25-29 in 1986
25-29 in 1990
25-29 in 1996
25-29 in 2000
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
% of women 25-29 contributing to RPPs, by cohort [1986-2004]
0.15
0.20
0.25
0.30
0.35
0.40
25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43age
cohort aged 25-29 in 1986
25-29 in 1990
25-29 in 1996
25-29 in 2000
10
SUMMARY
1. Cohorts of retirees have generally seen their wealth holdings increase since the mid-1980s…… except those in the bottom quintile
2. Among younger age groups, a) wealth holdings have not grown as much +b) pension coverage shifted downwards
== 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 Generally speaking, pension system effective re: poverty prevention, (Myles,
2000; Baldwin, 2006). Less known re: maintenance of pre-retirement lifestyles
Longitudinal analysis of post-retirement outcomes scarce… data issues
Focus on replacement rates– Income during post-retirement years relative to that at age 55
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
Longitudinal administrative data set (LAD)
20% sample of T1 tax filers
Linked across year, 1982 to 2005 (max. 23 years)
Prior to 1992, some issues with income reporting among low-income families… hence restrict cohorts to those earning >$10,000 at age 55
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
At 55, income at top was 3.8 times that at bottom; by age 75, 2.9 times
Family income for cohort age 55 in 1983, adult equivalent adjusted
0
20,000
40,000
60,000
80,000
100,000
120,000
55 57 59 61 63 65 67 69 71 73 75Age
Top quintile
Bottom quintile
Average
AE
A in
com
e af
ter
taxe
s
16
Replacement rates fall at top of distribution but remain around 1.0 at bottom
0.6
0.7
0.8
0.9
1
1.1
1.2
1.3
55 57 59 61 63 65 67 69 71 73 75Age
Bottom quintile
Top quintile
Rep
lace
men
t rat
es
Replacement rates for cohort age 55 in 1983
Median
17
Shares of total income, by income source- 1983 cohort -
At age 65 75
Bottom quintile Family earnings 34% 12% Private pensions 15% 18% Investment and capital gains 3% 9% OAS/GIS/CPP 32% 60%
Top quintile Family earnings 32% 14% Private pensions 24% 40% Investment and capital gains 33% 28% OAS/GIS/CPP 11% 18%
18
Significant distribution of replacement rates within quintiles, 1983 cohort
At age 55 65 75
Bottom quintileReplacement rate <0.6 7% 2% 0.6 to 0.8 16% 18% 0.8 to 1.0 100% 22% 29% 1 to 1.5 33% 35% >1.5 22% 16%
Middle quintileReplacement rate <0.6 18 % 25% 0.6 to 0.8 32% 37% 0.8 to 1.0 100% 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
Private Investment Age Earnings pensions and capital gains65 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
Median replacement rates
0.6
0.7
0.8
0.9
1
1.1
1.2
1.3
55 57 59 61 63 65 67 69 71 73 75Age
Rep
lace
men
t rat
e
1983
1989
1995
1998
Family income after taxes(constant dollars, AEA adjusted)
202530354045505560
55 57 59 61 63 65 67 69 71 73 75Age
19981995
1992
1983Tot
al in
com
e
$000
21
Family income instability falls over retirement years, and “instability gap” between rich and poor disappears
Mean absolute deviation in family income during 5 year intervals, 1983 cohort
0%
5%
10%
15%
20%
25%
30%
55-59 60-64 65-69 70-74 75-79 80-84
Me
an
ab
solu
te d
evi
atio
n
Bottom tertile
Middle tertile
Top tertile
Age Higher instability in market earnings among bottom tertile during
50s and early 60s
As more stable pension sources become larger share of income, instability declines, particularly among poorer families
22
Summary 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
But in middle quintile, one quarter have replacement rates below 0.6, in bottom quintile, 20% below 0.8
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
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
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