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Income Replacement in Retirement: Longitudinal Evidence from Income Tax Records

  • Frank T. Denton (a1), Ross Finnie (a2) and Byron G. Spencer (a1)


Applying an employment-income-based procedure for determining retirement, we analysed a large longitudinal data file of Canadian personal income tax returns for individuals to determine who has retired and to assess how successful they are in maintaining their incomes after retirement. The methodological approach may be of interest for possible application in other countries that have suitable data. Our main conclusions are as follows. First, in the two years immediately after retirement, the after-tax income replacement ratios average about two thirds when calculated across all ages of retirement. Second, the ratios tend to increase with the age of retirement. Third, the ratios increase with years in retirement, at least in the first few years. Finally, income replacement ratios are highest in the lowest income quartile and generally decline as income increases; within each quartile, the replacement ratios are higher for those who retired later than for those who retired earlier.

Nous analysons un grand fichier de données longitudinales des déclarations de revenus pour les individus canadiens, en appliquant une procédure de détermination de la retraite, qui est basé sur le revenu d’emploi, afin de évaluer qui se sont retirés et comment ils réussissent à maintenir leurs revenus après la retraite. Cette approche méthodologique peut être d’interêt pour une application éventuelle dans d’autres pays qui ont des données appropriées. Nos principales conclusions sont les suivants. En premier, dans les deux ans qui suivent le départ en retraite, les ratios de remplacement du revenu après taxes atteignent en moyenne environ deux- tiers lorsqu’ils sont calculés sur tous les âges de départ en retraite. Deuxièmement, les ratios ont tendance à augmenter avec l’âge de la retraite. Troisièmement, les ratios augmentent avec les anneés de la retraite, du moins dans les premières années. Enfin, les ratios de remplacement du revenu sont les plus élevés pour le quartile des revenu les plus bas et diminuent généralement à mesure que le revenu augmente ; avec chaque quartile, les taux de remplacement augmentent davantage pour ceux qui ont pris leur retraite plus tard que pour ceux qui l’ont prise plus tôt.


Corresponding author

*Correspondence and requests for offprints should be sent to / La correspondance et les demandes de tirés-à-part doivent être adressées à: Byron G. Spencer, Ph.D. McMaster University Department of Economics, KTH-426 Hamilton, ON L8S 4M4 (


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