By 2029, Old Age Security (OAS) will not become payable until age 67. After nearly half a century of improvements in government retirement programs, this is the first significant take-away. And it may not be the last.

For the last four decades, demographics and capital markets have worked in our favour, enabling us to enjoy ever-longer periods of retirement. But that era is coming to an end, and the change to the OAS retirement age is not the cause—it is a symptom.

There is a common misconception that we are in the midst of a retirement crisis. Certainly, this seems like a logical conclusion, given the low pension plan coverage in the private sector (now down to only 22% of workers being covered, according to data from Statistics Canada) and the vast amounts of RRSP contribution room that go unused. Nevertheless, our seniors are doing better financially than the working-age population. Using the low-income cut-off (LICO) as our measure of poverty, only 5.2% of seniors are below the LICO compared with 10.5% of people ages 18 to 64. That doesn’t even take into account the fact that we spend more than $30,000 a year on healthcare for each person age 75 and over, compared with roughly $4,000, on average, for everyone else.

The point isn’t about how well our retirees are currently doing but rather about how this is about to change. There are basically three factors that explain why older workers have been able to retire early and relatively comfortably. First, they built up substantial wealth as homeowners as house prices soared 500% or more in the past 30 years compared with a rise in inflation of just 154%. Second, financial assets have enjoyed a good run, the financial crisis notwithstanding, as the median pension fund returned 9.1% (before fees) over the 25-year period ending December 2009.

Third, and most significant, the labour force grew rapidly in the period from 1960 to 2000 because of two phenomena. First, the female participation rate in the workforce doubled from 33% to 67%. Second, the baby boomers entered the workforce. What does this have to do with retirement age? The labour supply grew much faster than the job market, which caused the unemployment rate to rise from an average of 4.2% in the 1950s to 9.6% in the 1990s. Governments, employers and big labour were all anxious to help older workers leave the workforce a little earlier to ease the pressure on the job market, and they all did their part to facilitate early retirement.

All three of these factors are now starting to work against us. First, we may or may not be in the midst of a housing bubble, but even if it isn’t a bubble, there are many reasons why housing prices will climb much more slowly in the future. The net result will be less housing wealth for future retirees. Second, actuaries are all in agreement that future returns in the capital markets will be lower than they were in the past 25 years. This is more than a guess. Bonds have just completed a 30-year rise as interest rates fell from 18% to under 3%, a slide that produced real returns (after inflation) of nearly 9% per annum. This can’t repeat; in past periods that started with low bond yields, we have often seen negative real returns over the subsequent 30 years.

Finally, the demographics are changing. The large surplus in our labour force is diminishing quickly as the female participation rate is levelling off and the baby boomers are starting to exit. This has caused the average unemployment rate in the 2000s to drop to just 7%, versus 9.6% in the 1990s. Once the unemployment rate gets back down to the 5% level—probably in the next decade—we will have just one large pool of potential workers to draw from: people in their 60s who thought they were about to retire.

If the economy needs workers badly enough, it will find ways to keep them working longer—through either incentives for staying or penalties for retiring early. This is more than conjecture. The recent change in the actuarial factors under the Canada/Quebec Pension Plan reflects this new reality, with a bigger reduction for early retirement and a greater increase for postponed retirement. OAS at 67, of course, is another example. The migration from DB to DC pension plans also results in later retirement. We can expect more measures from governments and employers to encourage later retirement (or discourage early retirement) as the unemployment rate continues to fall. The ultimate result is that Canadians will retire later.

Copyright © 2020 Transcontinental Media G.P. Originally published on

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Randy Colwell:

Balanced. Thoughtful. Helpful analysis. Good work, as usual Fred!

Thursday, April 12 at 8:59 am | Reply


I didn’t “retire early” (55). I took my head out of the trough when I had what I needed.

Friday, April 20 at 8:04 am | Reply


How much is enough to get my head out of the trough?
Curious to see how others like you make that decision….How much is enough?

Tuesday, June 05 at 3:46 pm

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