Income replacement in retirement: longitudinal evidence from income tax records

Applying an employment-income-based procedure for determining retirement, we analysed a large longitudinal data file of Canadian personal income tax returns for individuals to determine who has retired and to assess how successful they are in maintaining their incomes after retirement. The methodological approach may be of interest for possible application in other countries that have suitable data. Our main conclusions are as follows. First, in the two years immediately after retirement, the after-tax income replacement ratios average about two thirds when calculated across all ages of retirement. Second, the ratios tend to increase with the age of retirement. Third, the ratios increase with years in retirement, at least in the first few years. Finally, income replacement ratios are highest in the lowest income quartile and generally decline as income increases; within each quartile, the replacement ratios are higher for those who retired later than for those who retired earlier.