Golden years of retirement have become more golden

A new study analyzes the extent to which pre-retirement lifestyles can be maintained into retirement by comparing family incomes of Canadians as they age from their mid 50s to their late 70s. The study found that family incomes have generally risen, and recent retirees were able to maintain more of their pre-retirement family incomes, partly driven by an increase in private pensions.

The study looked at the income of Canadians 54 to 56 years of age in five cohorts (1984, 1987, 1990, 1993 and 1996) and tracked them for 24 years, at the end of which they would be 78 to 80 years of age.

The family income of retirees has risen over time

The study found that median and average family incomes of retirees have risen over time, albeit not strictly because of business and economic cycle effects.

However, living standards varied by income, with higher income families experiencing greater income growth.

A combination of higher earnings, Registered Pension Plans and Registered Retirement Savings Plans, and net capital gains drove income growth among the wealthiest retirees.

For the lowest income families, women and men aged 54 to 56 years of age saw their family incomes decrease slightly over the period of study but by ages 65 to 80, their incomes had either remained similar or increased (in the case of men).

Old Age Security (OAS) and the Guaranteed Income Supplement (GIS) played a key role in keeping living standards of lower-income retirees stable over this period.

Recent retirees are maintaining more of their pre-retirement income

Canadian men and women aged 54 to 56 in the mid-1990s were able to maintain more of their pre-retirement family incomes when they retired, compared with their counterparts in the mid-1980s.

For example, the median income for women retirees increased from 85% (1984 cohort) of their pre-retirement income to 90% (1996 cohort) just over a decade later. Similar trends were observed for men.

Lower income Canadians more likely to maintain or exceed their pre-retirement income levels than higher income Canadians

Lower-income Canadians were more likely to maintain or exceed their pre-retirement income levels compared with their higher-income counterparts.

For example, among women in the top 20% of the income distribution aged 54 to 56 in 1996, their retirement income was 72% of what it was prior to retirement, relatively unchanged from 1984.

Canadian women in the middle 20% of the income distribution saw their retirement income rise from 80% (1984 cohort) to 86% (1996 cohort) of their pre-retirement levels.

For the 20% of women with the lowest income, their median income replacement rates rose from 119% (1984 cohort) to 129% (1996 cohort). Similar trends were observed for men. However, the median and average retirement income gains for women and men from the bottom 20% of the distribution across cohorts were still lower compared with the rest of the distribution.

The study also found that family incomes overall have become more stable since the mid-1980s, with the Canada Pension Plan and Quebec Pension Plan, and OAS and the GIS playing a key role in stabilizing incomes as Canadians age.