Retirement trends in Canada
This article first appeared in the spring 2003 issue of the Expert Witness.
The value of an individual’s potential earning capacity depends in part on how long she will be in the labour force. That is, for the calculation of lost earnings, it is necessary to make assumptions concerning the age at which the individual would have retired (and will now retire).
The focus of this article is to compare retirement ages of Canadians over the five year period 1991–95 to retirement ages of Canadians over the five year period 1996–2000.* The findings show that for most educational and industry categories, Canadians are retiring earlier than they did even five years ago.
In the early 1980s, the median retirement age was close to age 65. However, retirement ages decreased steadily from 1986 to approximately 1993. Notably, in 1987, the Government of Canada reduced the age (from age 65 to age 60) at which Canada Pension Plan benefits could be collected (albeit with a reduced pension amount). I compare the retirement patterns of Canadians over the 1991–95 period to the retirement patterns of Canadians over the 1996–2000 year period to see if the trend for earlier retirement has continued. In Table 1, the distribution of retirement ages in Canada over the two five-year periods (1991–95 and 1996–2000) is summarized.
As shown in Table 1, in the five year period 1991–95, the highest percentage of individuals retired in the 60 to 64 year age category. In the five year period 1996–2000, 60 to 64 still remained the most popular age group for retirement, however the percentage of individuals retiring within the age category had dropped by 6 percentage points (37 percent to 31 percent). The percentage of individuals retiring “earlier”, in the 50 to 54 age category and 55 to 59 age category both increased – the former having the largest increase (9 percent to 15 percent, or 6 percentage points). This suggests that although many Canadians are still choosing to retire at a “normal” retirement age (60 to 64), there is a shift to earlier ages.
Although the percentage of people retiring in their 60s decreased within the time period considered, the percentage of individuals retiring at age 70 or above remained unchanged.
Table 2 compares median retirement ages in Canada over the periods 1991–95 and 1996–2000. (The “median” retirement age is defined such that 50 percent of individuals retire at ages above that age and 50 percent below it.)
As shown in Table 2, the overall median retirement age has decreased by one year, from approximately age 62 (1991–95) to 61 (1996–2000). The median retirement ages of private employees also decreased by one year (from age 63 to age 62), however the retirement ages of public employees decreased by two years (from 60 to 58). Self-employed individuals experienced no change in retirement trends from 1991–95 to 1996–2000. The earlier retirement ages of public employees are likely due to the generous pension plans available to most public employees, which often offer incentives to retire at earlier ages.
Table 3 summarises retirement ages by industry. As shown in the table, many industry categories also experienced decreases in median retirement ages between 1991–95 and 1996–2000. However, self-employed individuals did not alter their retirement patterns in most industries and, if anything, the retirement age of self-employed individuals may be increasing.
Considering the “employees” category for the goods-producing occupations, retirement ages remained constant for all industries except for utilities and construction. These two experienced a decline in retirement ages of 2 years. For service-producing industries, all declined except management, which remained constant at 65. Educational services showed the largest decline in retirement ages over the two five year periods – from age 61 to age 57, a drop of four years. This may have resulted from restructuring within the education sector that led to the offering of early retirement packages to many teachers. If so, there may be a reversal of this decline in the future (as fewer early retirement incentives are offered).
Self-employed individuals again show higher retirement ages than employees. Within the goods-producing industries, most show an increase in the age of retirement (there was a decline in manufacturing), which goes against the overall trend for retirement patterns of Canadians. The service-producing industries, however, showed a one year decrease in retirement ages for the trade, management, and other industries; constant retirement ages for transportation and professional industries; and a one year increase in retirement ages for health care and accommodation industries. The largest increase was in the finance, insurance, and real estate industries, which saw a four-year increase in retirement ages over 1991–95.
The above tables show retirement trends by industry, and the statistics combine both male and female statistics, and also do not consider specific levels of education. The statistics for males and females, by education levels are summarized in Table 4.
Over 1991–95, men and women overall had similar retirement patterns. That is, there was only one year difference in the retirement ages at each education level. In 1996–2000, the male retirement patterns saw very little change from 1991–95, with most education levels having unchanged retirement ages. Only males at the high school diploma level experienced a decline in retirement (age 61 to 60).
Females, on the other hand, have followed a decline at each level by at least one year. Females with a university education resulted in the lowest median retirement age (57) over 1996–2000. Also note that at the high school diploma level, males and females experienced the same retirement age (60).
I note, however, that the female retirement trends may be underestimated. Retirement trends are based on historical retirement, and may not reflect the trends of future generations. That is, young women in the labour force now may experience different retirement patterns than women who were of retirement age in the last five years. The current generation of women are obtaining higher levels of education, and are participating in the labour force more, as compared to those women of retirement age now. This suggests that their labour force attachment may be greater than the attachment of the older cohorts. Therefore, it may be theorized that young women now in the labour force will retire later than women who faced the retirement decision in recent years.
Also, there is evidence to suggest that in the future, there may be pressure for Canadians, both male and female, to delay retirement. For example, in a paper entitled “Future Age of Retirement”,** Brown argued that as the baby boom generation moves into the retirement ages, they will attempt to liquidate assets in order to buy goods and services. This will reduce the value of the assets due to the number of retirees attempting to do this. Also, the smaller “baby bust” generation will be the source of labour within the economy. The production in the economy may slow due to the smaller labour force, resulting in price inflation. This may force some potential retirees to postpone retirement since the value of their assets will have decreased. Thus, Brown’s prediction for retirement in Canada is that the median retirement age will fluctuate between age 60 and 61 over the next 47 years. That is, the overall median age of retirement and the trend of decreasing retirement ages may not continue on into the future.
Based on the above information, it seems that the median retirement age in Canada has fallen from age 62 to 61 and, depending on educational attainment and gender, the average retirement of an individual may be as low as 57, or as high as 65. Self-employed individuals continued to retire at approximately age 65.
For the purposes of loss of income calculations, it seems reasonable to consider the education level of the individual, since there are statistics available for both males and females. In addition, if a career path has been established, one should also consider retirement patterns of the specific industry. For minors, the overall or educational statistics would be appropriate.
* The source of the data provided in this article is the Statistics Canada publication Perspectives on Labour and Income, Summer 2002 Vol. 14, No. 2, and Summer 1997 Vol. 9, No. 2. [back to text of article]
** Brown, Robert L. “Future Age of Retirement” Canadian Investment Review, Fall 2002, pages 32-37. [back to text of article]