A Macroeconomic Indicator of Age at Retirement

This paper explores the relationship between the Wealth Transfer Index (WTI), a statistic defined by Brown and Bilodeau (1999), and retirement age, which is the age at which the workers in an economy cease to be economically productive. Appropriately expressed as ratio of consumption demand to labor productivity, the WTI is a barometer for the demand for wealth placed on the workers of an economy. This paper explains why a relationship between this statistic and retirement age must exist. Using Canadian historical median retirement age data compiled by Statistics Canada and calculated values of the WTI for the same period, three linear regression models are fitted. The conclusion from this analysis is that there is a strong positive correlation between the WTI and average retirement age. This paper also briefly looks at the well-documented demographic shift expected to occur in Canada because of the baby boom-baby bust tidal wave. The aged dependency ratio is expected to increase dramatically, reaching 45% in 2036. A practical application of the WTI model suggests that the baby boom cohort may experience a rise in the normal retirement age in the period 2017-34. They will, in effect, be forced to retire at ages that will allow for an "acceptable" transfer of wealth from the workers to dependent Canadians. Using one of the fitted linear regression models and projected values of the WTI, the paper then projects the median retirement age to 2041 for Canadian workers. The paper concludes by speculating on how the marketplace might respond to higher retirement ages