The Decision to Postpone Retirement Across the Peak-Earnings Distribution: Evidence from Canada

Abstract

Abstract Canada’s public pension system yields varying financial incentives to postpone employment exit across the peak earnings distribution. Using a panel of income tax filers and a duration model, I examine the extent to which employment exit hazards differentially spike at the standard age-65 threshold for retirement benefit eligibility across deciles based on workers’ peak earnings distribution. Results indicate that disincentives to continue working after crossing this threshold are associated with marked employment exit hazard spikes among those in the bottom deciles who are mostly likely to receive low-income support Guaranteed Income Supplement benefits. In addition to financial incentives from the public pension system, estimates from a cohort difference-in-differences estimator and a heterogeneity analysis suggest that among those in the middle to upper deciles societal norms for retirement timing and expected private registered pension plan eligibility are also likely candidates for explaining age-65 employment exit spikes.