Study reveals income impacts longevity

A longevity gap between rich and poor has persisted over the years in Canada with significant policy implications, according to a new report from the C.D. Howe Institute. In “Rich Man, Poor Man: The Policy Implications of Canadians Living Longer” – the first study of long-term changes in longevity across earnings groups in Canada – authors Kevin Milligan and Tammy Schirle provide new evidence on the incomes and life expectancy of Canadians.

Increases in longevity have been brisk for Canadians, with both men and women experiencing longer lifespans past age 50 than the generations before them. With those extra years of life come some costs such as pensions, healthcare, and other age-dependent expenditures. According to the report, the highest-earning Canadian women outlive the lowest-earning women by three years. For men, the longevity gap between the highest and lowest earners is eight years, or more than 10 per cent of a lifespan. 

“We do not have evidence that the earnings-longevity relationship is causal – those with higher earnings may have higher education, different health habits, and other characteristics that drive their longevity more than the income itself,” Milligan says. “However, longevity is a highly valued aspect of well-being, so its distribution across different types of Canadians matters.”

The report highlights that the gap in life expectancy between high and low earners in Canada has not grown over time and improvements in longevity are evident across all earnings levels. This result is in sharp contrast with evidence from the United States, where longevity growth has been concentrated in the top half of income groups. An analysis of American men by family income percentile finds a range of 14 years from bottom to top percentile, so the gradient in Canada is smaller than it is in the United States.

“Our data do not allow us to draw conclusions about the causes of the earnings gradient and its uniform shift in Canada and why it is different from the United States,” says Schirle. “Documenting the facts is an important first step, because these facts have important policy implications.”

As one example, the policy impact on pensions is direct.  If those who are living longest are the ones with the highest annual pension benefits then the total costs of the pension payouts may be higher than expected. Moreover, differential longevity alters the net balance of pension contributions and pension benefits across high and low earners.

Private annuity markets are shaped by the longevity expectations of different potential purchasers of annuity products. In addition, we should take note of how differing longevity of different groups of Canadians affect the value of public retirement income programs and well-being across society, say the authors.