Retirement is a modern invention. And retirement at the age of 65? Early retirement at 60? Freedom 55? Those are even more recent novelties.
Within the living memory of our eldest citizens, the vast majority of people didn’t retire – one reason being the average person didn’t live long enough to accumulate the needed savings. In 1921, the average Canadian life expectancy was under 61 years for women, and below 59 years for men.
The Baby Boomers are the first generation of Canadians whose life expectancy at birth was more than 65 years.
The mid-20th century’s simultaneous explosions of health, wealth and longevity made middle-class retirement possible. By the mid-1960s, when the Canada Pension Plan was created, the average man aged 65 could expect to live another 13.6 years, and the average 65-year-old woman could look forward to another 16.9 years of life. Today, the average 65-year-old man can expect to live another 19.9 years, and the average woman 22.5 years.
Retirement is one of the modern world’s great innovations. It’s also one of postwar Canada’s big accomplishments. But as our lifespans increase, it’s worth asking whether retirement in the future should look like retirement in the past – and whether 65 should remain the magic number.
A report this week from the Canadian Institute of Actuaries suggests tinkering with some key government policies and nudging Canadians into considering retiring later. Among the proposed changes:
- Shifting the target retirement age for CPP and Old Age Security from 65 to 67, with a commensurate 14.4-per-cent boost in the monthly pension.
- Allowing Canadians to defer OAS and CPP until as late as 75, with a big boost in monthly payments as incentive. Today, those pensions must start paying out by the age of 71.
- Allowing Canadians to put off withdrawing from their RRSPs until the age of 75. Right now, once you hit 71, you must start pulling money out.
- Encouraging employers to choose 67, rather than 65, as the target retirement date for new pension-plan members, with proportionate increases in future pension benefits.
The proposals will not save the government money, nor will they reduce private-pension costs. Nor is this about forcing golden-agers to keep their noses to the grindstone. Instead, it’s about offering incentives to older Canadians who are willing, able and eager to remain in the work force.
That describes a growing number of people. It’s one of the paradoxes of Canada’s retirement success story: Work is something people want to eventually retire from, but also a source of happiness and purpose. And even as life expectancy rises, 65 remains the magic age at which people are expected to call it quits – even though, in terms of longevity and health, 65 is the new 55.
Leaving the labour force at 65 or earlier is fine, if that’s what an aspiring retiree wants (the average retirement age is currently 63.8). But a lot of Canadians at that stage in life are highly experienced people who still want to work. Retiring is a double loss, for them and for the economy.
That’s why Canada needs policies to nudge Baby Boomers, and generations to come, into thinking hard about the cost of retiring sooner, and the upside of waiting a few years.
For example, last month’s federal budget encouraged low-income seniors to stay in the work force by allowing them to earn more employment income before clawing back their Guaranteed Income Supplement payments. A retired, low-income senior gets the full GIS – but a working, low-income senior gets those benefits, plus wages. It rewards people who work, without punishing those who don’t.
The Baby Boom generation is so enormous that a small shift in the number of its members staying in the labour force will have a big impact.
In 2017, the federal advisory council on economic growth calculated that if the work-force participation rate of Canadians aged 55 to 69 were to rise from 54 per cent to 62 per cent – the level in Sweden, Norway, the United States and Japan – Canada’s gross domestic product would get a permanent 2.8-per-cent boost. That’s an extra $60-billion a year in economic activity.
Canadians in their 60s and 70s are younger than ever, and getting more youthful every day. Ottawa and the provinces should offer them every incentive to stay economically active for as long as they want.