Dismal Income Prospects For Gen X Retirees

There is an interesting new piece on incomes of future retirees, “The Canadian National Retirement Index”,  by MacDonald, Moore, Chen and Brown in Canadian Public Policy. It uses the Statistics Canada Life Paths Model to forecast the incomes of future retirees.

This greatly amplifies, to my mind, the case for expansion of the Canada Pension Plan and public pensions generally in the face of falling private pension plan coverage and the woeful performance of RRSPs.

Table 1 indicates that a significant and rising proportion of Canadians are at risk of having inadequate retirement income to maintain current consumption levels, especially those in the upper two-thirds of the income distribution who will not qualify for the Guaranteed Income Supplement.

33% of “early boomers” born 1951 to 1958 (c’est moi!) and in the middle third of the income distribution  are expected to be at risk, and this proportion will rise steadily over younger age cohorts so that almost half (46%) of those born between 1983 and 1990 will be at risk . The comparable numbers for those in the top one third of the distribution are 57% and 70%.

Gen X ers (born 1967 to 1990) in particular should be out there demanding that something be done today to avert a very risky tomorrow.

% At Risk of Inadequate Retirement Resources
Birth Cohort Middle Third Top Third
Pre Boomers (1943-1950) 31% 55%
Early boomers (1951-1958) 33% 57%
Late boomers (1959-1966) 37% 62%
Early genXers (1967-1974) 41% 65%
Mid-genXers(1975-1982) 44% 68%
Late genXers (1983-1990) 46% 70%

The abstract follows:

Bonnie-Jeanne MacDonald, Kevin D. Moore, He Chen and Robert L. Brown

Canadian Public Policy, 2011, vol. 37, issue s1, pages 73-94

Abstract: This article measures a Canadian National Retirement Risk Index (NRRI). Originally developed by the Center for Retirement Research at Boston College, the NRRI is a forward-looking measure that evaluates the proportion of working-aged individuals who are at risk of not maintaining their standard of living in retirement. The Canadian retirement income system has been very effective in reducing elderly poverty, but our results suggest that it has been much less successful in maintaining the living standards of Canadians after retirement. Since the earlier years of the new millennium, we find that approximately one-third of retiring Canadians have been unable to maintain their working-age consumption after retirement – a trend that is projected to worsen significantly for future Canadian retirees. The release of the Canadian NRRI is timely given the widespread concern that the current Canadian retirement income system is inadequate. Many proposals have recently emerged to extend and/or enhance Canadian public pensions, and the NRRI is a tool to test their merit. The methodology underlying the Canadian NRRI is uniquely sophisticated and comprehensive on account of our employment of Statistics Canada’s LifePaths, a state-of-the-art stochastic microsimulation model of the Canadian population. For instance, the Canadian NRRI is novel in that it models all of the relevant sources of consumption before and after retirement, while accounting for important features that are typically neglected in retirement adequacy studies such as family size, the variation of consumption over a person’s lifetime, and the heterogeneity among the life courses of individuals.

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