Today's Canadian seniors benefit most from government retirement programs if they stop working between 60 and 61 years of age, says University of Toronto economist Michael Baker.
"The money the average Canadian gets from government retirement programs peaks at about age 60. There is an incentive in the system to retire at that age and Canadians seem to be responding to it," says Professor Baker. "Seniors are recognizing that, in a sense, they are losing money if they wait any longer to leave the workplace."
Baker, along with University of Toronto PhD student Kevin Milligan, and Jonathan Gruber, an economist at Massachusetts Institute of Technology, studied the earning histories of thousands of Canadian seniors. The researchers calculated the seniors' entitlements under the various public retirement programs - the Canada Pension Plan/Quebec Pension Plan, Old Age Security, Guaranteed Income Supplement and the Spouse Allowance - and compared these figures to their actual retirement decisions.
"Our results show clearly that Canadians are less likely to retire in a year in which working an additional year would increase their lifetime benefits significantly," he says. The study is the first of its kind in Canada which uses real-life data to show that seniors do in fact respond to incentives in government retirement programs.
"We expect public pension programs to face a number of fiscal problems in the future," says Baker. "This research shows that if governments want to encourage Canadians to work longer they need only change the rules, such as the level of benefits or the date at which early retirement becomes an option."
The study was presented recently to the U.S.-based National Bureau of Economic Research and to the Canadian International Labour Network.
CONTACT: Professor Michael Baker, department of economics, (416) 978-4138,
baker@chass.utoronto.ca
or Judy Noordermeer, U of T public affairs, (416) 978-4289,
judy.noordermeer@utoronto.ca.