Public pensions help low-income earners maintain pre-retirement income level
Private pensions and personal investments significantly help a middle-income earner maintain or exceed his pre-retirement income at age 75, according to a new Statistics Canada study.
The study, Income Security in Retirement Among the Working Population, followed people from age 55 in 1983 to age 76 in 2006 and, on average, Canadian workers had a family disposable income at 75 that was 80 per cent of their income at age 55.
Middle income workers were able to replace between 75 per cent and 80 per cent of their pre-retirement family income. However, there were wide variations in this replacement rate with some replacing less than 60 per cent and others replacing more than 100 per cent, even when pre-retirement incomes were identical.
Access to earnings and income from investments and capital gains accounted for 90 per cent of the difference in income between workers with low replacement rates and those with high replacement rates at age 65.
By age 75, the main factor in determining a high replacement rate was access to a private pension. This accounted for 45 per cent of the difference in income levels between the two groups, while investment and capital gains accounted for another 27 per cent of the difference.
The study also found disposable incomes for wealthier Canadian workers declined significantly after they headed into the retirement years, but those with low incomes encountered relatively little change.
Workers in the bottom 20 per cent of the income distribution were able to replace nearly 100 per cent of their pre-retirement income. This was mainly due to the income they received from the public pension system, including Canada/Quebec pension plans, Old Age Security and the Guaranteed Income Supplement.
Workers in the top 20 per cent of the income distribution experienced substantial declines in income by the time they turned 75, only replacing about 70 per cent of their before-retirement income through private pensions, registered retirement savings plans, investments and public pensions.
The study, Income Security in Retirement Among the Working Population, followed people from age 55 in 1983 to age 76 in 2006 and, on average, Canadian workers had a family disposable income at 75 that was 80 per cent of their income at age 55.
Middle income workers were able to replace between 75 per cent and 80 per cent of their pre-retirement family income. However, there were wide variations in this replacement rate with some replacing less than 60 per cent and others replacing more than 100 per cent, even when pre-retirement incomes were identical.
Access to earnings and income from investments and capital gains accounted for 90 per cent of the difference in income between workers with low replacement rates and those with high replacement rates at age 65.
By age 75, the main factor in determining a high replacement rate was access to a private pension. This accounted for 45 per cent of the difference in income levels between the two groups, while investment and capital gains accounted for another 27 per cent of the difference.
The study also found disposable incomes for wealthier Canadian workers declined significantly after they headed into the retirement years, but those with low incomes encountered relatively little change.
Workers in the bottom 20 per cent of the income distribution were able to replace nearly 100 per cent of their pre-retirement income. This was mainly due to the income they received from the public pension system, including Canada/Quebec pension plans, Old Age Security and the Guaranteed Income Supplement.
Workers in the top 20 per cent of the income distribution experienced substantial declines in income by the time they turned 75, only replacing about 70 per cent of their before-retirement income through private pensions, registered retirement savings plans, investments and public pensions.
