Income replacement during the retirement years

By Sébastien LaRochelle-Côté, Garnett Picot and John Myles

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In 2006, the family income of a typical individual in his late seventies was about 80% of that same person’s family income in his mid-fifties, or 23 years earlier.

Individuals who were in the bottom quintile of family income typically achieved higher replacement rates as most had replacement rates above 1.0 (or 100%) in their mid-seventies.

Since they had a higher income to replace, most individuals in the top income quintile had lower replacement rates, in the 0.7 range. Still, one-third of them had replacement rates above 0.8 in their mid-seventies.

Individuals in the middle quintile typically had replacement rates closer to 0.8, but a sizeable minority—about 22%—had replacement rates below 0.6.

The sources of pension income differed largely across income groups as well. For those who were in the bottom quintile in their mid-fifties, public pensions (Canada Pension Plan, Quebec Pension Plan, Old Age Security, Guaranteed Income Supplement) accounted for two-thirds of total family income on average. Individuals in the top quintile relied a lot more on private sources of income.

Among middle-income Canadians, private and public sources of pension income each contributed 45% and 32% of total family income before taxes, respectively.