Changing Retirement Patterns in Canada

By Malcolm Stewart, Ph. D.

In each decade since the 1950s, the average retirement age of Canadians has fallen. In 1994, the average age at first retirement was 60.4. By the mid-1990s the median age of retirement was about 61 for men and 58 for women – well below the ‘traditional’ retirement age of 65 (when pension benefits typically begin). Moreover, most retirees remain retired. In the mid-1990s only a small proportion — around 16 percent of men and 9 percent of women age 45 and over– returned to paid employment after formally retiring. However, the latest figures from Statistics Canada show a significant increase in employment among older Canadians, mirroring a trend that researchers have been tracking in the United States since the 1980s. In 2003, 11.5 percent of men and 4.1 percent of women age 65 and over – over a quarter million seniors — were engaged in paid employment, compared with 9.8 and 3.4 percent respectively in 1999. Why is this ‘up tick’ in labour force participation of older people occurring? Is it likely to continue and perhaps intensify? Are more and more of us likely to be working into our later years, as long as we are physically able to do so?

It is important to note some of the factors that influence people to retire when they do and why some return to work after formal retirement. The reasons are complex. Some are reasons of choice and some of necessity. Heading the list of reasons are the sufficiency or insufficiency of retirement income. A good, defined benefit company pension and significant investment income may enable some people to retire in comfort at a time of their choosing. For others, occupational pension income may be meagre or non-existent; and over-exposure to technology or other high-risk investments may have decimated their savings. Given the trend towards conversion of company pensions from defined benefit to defined contribution and cuts in government retirement benefits, many older workers are increasingly concerned about the adequacy of their retirement income. This concern is exacerbated by the uncertainty of the future costs of health and long-term care.

Other prominent reasons for retiring, delaying retirement or returning to work after retirement centre on psychological factors and social pressures or obligations. Older workers with higher levels of human capital, who are best suited to thrive in an information / service economy, often wish to remain active longer, while those who associate work with onerous physical demands, discriminatory attitudes towards older workers, or who are faced with early retirement incentives or union rules that encourage early retirement may welcome an early exit. Some older workers continuously assess the trade-off between work and leisure, in the context of changing priorities in later life. Major life events, such as a change of one’s health status or that of a loved one, a change of marital status, a spouse’s retirement or the obligation to provide care to aging relatives often precipitate the decision to retire.

The broader context of retirement

Canada’s population, like those of most industrialized nations, is aging as a result of increasing life expectancy and low birth rates. By 2006, the first wave of post-Second World War baby boomers (born 1946 to 1966) will reach age 60. In successive years, increasing numbers are likely to leave the paid labour force, leaving fewer and fewer younger workers to keep the economy going. Immigration can replace some of the retirees, but at present levels (less than one percent of total population per year) it cannot reverse the shrinkage of the labour force.

However, we are not necessarily on the road to disaster. Suggestions that growing demands on shrinking resources by older Canadians may overshadow the needs of younger generations leading to intergenerational conflict are misplaced. Yes, people are living longer, but in better health than previous generations. Older people continue to contribute to the economy through taxes and indirectly through non-paid work. Eventually their savings will flow back into the economy through their own consumption or that of their heirs.

Retirement has been described as a social institution, the purpose of which is to systematically remove older workers from the labour market in a manner that does not generate undue economic hardship or widespread political protest {Atchley, 1982b #10}. This is exactly the function it served in most industrialized countries after the Second World War. Governments established public retirement income programs including tax-assisted retirement savings plans and many employers set up company pension plans for their employees. Many unions negotiated mandatory retirement at 65 or sooner to protect their members from the spectre of endless toil. Retirement, usually by age 65 or sooner, aided by a company pension, government benefits and some savings, became increasingly common, especially for men in the industrial sector of the economy.

Then, some time in the 1980s, the ‘wheels came off’ this happy arrangement. Economic recessions in the 1980s and 1990s led to unemployment from which many older workers never recovered. In an effort to reduce unemployment, employers encouraged older workers to retire earlier than they had planned, often with payouts. Governments, concerned with the burgeoning costs of public income security began to trim benefits. Then the dominant form of employment began to change, from permanent, full-time, full-year jobs in the industrial sector to less secure, temporary, part-time, ‘non-standard’ jobs in the emerging service and information economy.

Of course, the ‘industrial model’ of male employment and retirement had never worked well for women, whose participation in the labour force by 1980s approached equity with men. Women’s paid work, generally inferior to men’s in terms of compensation, benefits and advancement opportunities, was frequently interrupted by family responsibilities.

Conceptual issues related to retirement The question of when a person should be considered retired is not as simple as it first appears. Generally, a person is considered to be retired when he or she has left the paid labour force and has no intention of returning. This often coincides with the receipt of retirement income and advanced age, although some workers such as military service personnel, air traffic controllers, police officers, fire fighters and airline pilots typically retire with pensions when they are still relatively young. However, as noted above, people may delay or reverse the decision to retire because of financial need; preference for remaining active and socializing with co-workers, desire to achieve career goals; or a critical life event such as widowhood, separation or divorce. All this begs the question: does the traditional definition of retirement make sense any longer? Some people leave the paid labour force with a pension and no intention of returning, only to return to some form of paid employment a year or two later. Others try to return, only to find that employment at the level to which they were accustomed is hard to come by. They may become discouraged and eventually leave the labour force, or they may settle for less lucrative but also less demanding work.

The need for a new paradigm

Some social theorists have suggested that the life course of most people has changed from the traditional pattern of childhood / education / employment / retirement to a more complex and varied pattern that may include several interludes between episodes of education or re-training and employment throughout adulthood. For women, the pattern is even more complex when child-rearing, changes in family status, a spouse’s employment and education / re-training and care-giving are factored in.

As a society, we need to re-think widely accepted ideas about retirement. In view of the possibility that significant numbers of baby boomers may reject the notion of leaving the labour force at around 60 years of age with no intention of returning, or may change their minds once they have left, it is incumbent upon employers and policy-makers to modify the institution of retirement to offer a wider range of options to aging workers than presently exists. This includes more flexible arrangements for leaving the labour market in stages, perhaps with partial public and private pension benefits, rather than the ‘all-or-nothing’ approach that currently prevails. More thought is needed to modify work environments (lighting, auditory stimuli) and training (organization of content, pacing) to accommodate older workers, whose physical responses and sensory acuity may not be what they once were. Above all, attitudes in the workplace that may de-value older workers, perpetuating stereotypes that they are accident-prone, unreliable or slow to learn new skills must be expunged, if not for reasons of social justice, then out of economic necessity.

Malcolm Stewart is a lecturer at the Faculty of Social Work, University of Toronto. His teaching and research interests include the development of appropriate social policies for the aging Canadian population. To contact Malcolm Stewart, please email him at m.stewart@utoronto.ca