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April 24, 2019

From: Bob Baldwin

To:  Canadians concerned about retirement

Date: April 24, 2019

Re:  Trends in Pre-Retirement Wealth

Over the period from 1999 to 2016, the wealth (net worth and total assets) of Canadians approaching retirement who were in the middle of the wealth distribution grew quite strongly in constant dollars.

The growth in wealth was notably stronger than income growth over the same period. The growth was driven in large part by the increasing value of principal residences. But other forms of wealth also grew strongly including retirement wealth.

In my recent C.D. Howe Institute working paper I examined the evolving wealth of Canadians approaching retirement. And principal residences are a growing source of that wealth.

Two additional dimensions to the growth in wealth in principal residences are worth noting. As is widely known, the growth in housing wealth has been much stronger in major urban centres than elsewhere. The CANSIM data exist for Toronto, Vancouver, New Brunswick, and Prince Edward Island. Qualitatively there are no surprises in what the data show. Principal residence values are higher in Toronto and Vancouver, the values have grown more rapidly, and home ownership is less common in Toronto and Vancouver.

Figure 1 provides relevant quantification of these points for 45–54 year olds and 55–64 year olds. Two points not already noted stand out in these data. First, the very high levels of home ownership in New Brunswick and Prince Edward Island; and second, the fact that there were small increases in the portion of the population in these older preretirement age ranges who own homes.

The only exception to this general trend was provided by 45–54 year olds in Vancouver, where the portion of home owners declined by 7 percentage points from 71.9 percent to 64.9 percent. For people in the age groups approaching retirement, the strong growth in the value of principal residences has been accompanied by the growth in mortgages on principal residences.

The portion of the population approaching retirement age that has a mortgage on their principal residence has grown in recent years in both the 45–54-year-old age group and the 55–64-year-old age group. In addition, the median value of mortgages has grown somewhat faster than the median value of principal residences for the 45–54-year-old age group.

This is a major contributor to the fact that the wealth of Canadians approaching retirement age was more highly leveraged in 2016 than in 1999 and, as a result, is more vulnerable to movements in interest rates.

Overall, however, the retirement wealth picture among groups approaching retirement age looks better now than it was 20 years ago. This is a welcome statistic, given that expected rates of return are now lower than they were, and that average time spent in retirement is rising. Further policy efforts should now focus on vulnerable groups. 

Bob Baldwin is Proprietor, Baldwin Consulting and a member of the C.D. Howe Institute’s Pension Policy Council.

To send a comment or leave feedback, email us at blog@cdhowe.org.

The views expressed here are those of the author. The C.D. Howe Institute does not take corporate positions on policy matters.