Notes

^1.

See Perrin (1969) and the report of the federal government Task Force on Retirement Income Policy of 1980.

^2.

Back in 1983, individuals who were part of families with less than 10,000 in adult-equivalent-adjusted (AEA) income had a lower probability to file.

^3.

The LaRochelle-Côté, Myles and Picot study also excluded individuals who had not filed in some of the years prior to the last year of data (or prior to the year of death); those individuals are included in this study.

^4.

To arrive at adult-equivalent-adjusted income, all family incomes or their components are divided by the square root of family size; this is perhaps the most common manner of adjusting family income. Hence, a family of four would require only twice the family income of a family of one in order to have the equivalent standard of living, not four times the income, due to economies of scale. This adult-equivalent-adjustment process does have the effect of making the family income appear somewhat lower than one might be used to seeing. For example, if a family of four has an unadjusted family income of $50,000, the adult-equivalent-adjusted income for that family would be $25,000. The adult-equivalent-adjusted income is a measure of the per capita economic resources available to each members of the family.

^5.

Statistics Canada's Longitudinal Administrative Database (LAD) consists of a random 20% sample of the T1 Family File, a yearly cross-sectional file of all tax filers. Individuals selected for the LAD are linked across years in order to create a longitudinal profile of each individual. The LAD contains demographic, income, and other taxation information for the period from 1982 to 2007; this information makes it possible to track individuals for a maximum of 25 years. As a result, it is possible to follow the evolution of the financial situation of individuals after retirement over a long period.

^6.

This paper examines a cohort of individuals aged 54 to 56 in 1983, until they are 77 to 79 years of age in 2006. Of course, some people die or exit the sample between the beginning (1983) and end (2006) years. One commonly used approach is to restrict the sample to individuals who were in the sample at both the beginning (1983) and end (2006) years. This is not the favoured approach in this paper as it would unnecessarily reduce the sample size. Rather, for any given year, for example 1989, the sample consists of all individuals who were observed as part of the sample in both 1983 and the year of interest, in this case 1989. As we move from 1983 to 2006, the sample size is reduced as people exit. The fact that the number of people in the sample is changing as one moves from 1984 to 2007 could introduce a bias in the replacement rate trend, as the characteristics of the population could be changing. To determine whether such bias is observed, one can think of each final year as a particular cohort. For example, the sample of people who are in the data in 1983 and 1984 would be the 1984 cohort; those in the sample in 1983 and 1985 comprise the 1985 cohort; and so on. Thus, replacement rate trajectories were computed for each cohort, from 1984 to 2007, and were then superimposed one on the other. They did not differ in any significant way. Hence, allowing the sample to change as one moves from 1984 to 2007 did not introduce a significant bias in the replacement rate trajectories.

^7.

Capital gains are typically fluctuating more than other income sources and have been subject to changes in their tax treatment over the period.

^8.

As noted earlier, this paper uses a form of "permanent" income whereby the family income reported at each age is a three-year moving average. For example, family income for an individual aged 55 in 1983 is really the average adult-equivalent-adjusted (AEA) family income of that individual in 1982, 1983 and 1984.

^9.

It should be noted that these flows do not take into account the housing services that are produced by home ownership. Brown, Hou, and Lafrance (2010) report that the implicit rent that equity investments in homes generate provides an additional, and substantial, source of income to the average retiree.