Many of today’s middle-income earners will experience a substantial decline in their standard of living once they retire, according to a new study published by the Institute for Research on Public Policy (IRPP).

The study, Projecting the Adequacy of Canadians’ Retirement Incomes: Current Prospects and Possible Reform Options, uses simulation modelling to show that approximately one-half of Canadians who were born between 1945 and 1970 and have career-average earnings of between $35,000 and $80,000 are likely to experience a drop in income of at least 25% once they reach retirement.

Author Michael Wolfson also explored potential pension reform scenarios. He simulates the effect of a gradual doubling of Canada/Quebec Pension Plan (C/QPP) benefits from 25% of career-average earnings to 50%, up to the maximum pensionable earnings of about $47,000. He also assesses his own “wedge” option, which would increase CPP benefits to 40% of career-average earnings for those earning between $23,500 and $94,000. Results indicate that these reform scenarios have a limited impact, given that they would only be fully implemented 40 years from now—too late for cohorts coming up for retirement.

In the research report, Wolfson says the C/QPP reform options governments are considering are more limited in scope than the options he assessed. He argues that even improved indexing of Old Age Security and the Guaranteed Income Supplement would produce better results.

View the full study .

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