THE COST OF BASIC NEEDS FOR THE CANADIAN ELDERLY · 2014-04-25 · Vancouver 13,618 20,200 16,335...

THE COST OF BASIC NEEDS FOR THECANADIAN ELDERLY

Bonnie-Jeanne MacDonald Doug AndrewsRobert L.Brown

Abstract

This paper determines the after-tax income required to finance the ba-sic needs for Canadian seniors living in different circumstances in terms ofage, gender, city of residence, household size, homeowner or renter, meansof transportation and health status. Using 2001 as our base year, we pricethe typical expenses for food, shelter, medical, long-term care, transporta-tion and miscellaneous basic living items for seniors living in Halifax, Mon-treal, Toronto, Calgary and Vancouver. Such information is important forseniors, prospective retirees, financial planners, policy makers and actuar-ies in assessing the minimum level of income required in retirement and theadequacy of savings and income security programs.

The objectives of our study were embodied in the recently developed USElder Economic Security Standard, and this measure provided the founda-tion for our conceptional framework. Our project is unique because it is thefirst Canadian study of basic living expenses tailored to seniors rather thansimply to adults in general, prepared on an absolute rather than a relativebasis. We also uniquely account for an individual’s life circumstances, aslisted above, rather than simply their city of residence and household size.

Our study establishes the wide varying effect and immense impact thatthe life circumstances of seniors have on the cost of their basic needs. Ourresults suggest that the total living cost for an elderly person is near to, oreven higher than, that for a non-elderly adult. This conclusion is in oppo-sition to the commonly held belief that retired seniors automatically havefewer expenses than working non-seniors. Of particular importance is theimmense cost of long-term health care assistance, a potential necessary ex-pense that previous Canadian measures have not considered. Finally, thethreshold for a Canadian senior with typical circumstances and that for a

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Canadian in poor circumstances are at approximately the same levels, andthe combined maximum GIS and OAS benefits do not meet the cost of basicneeds for these latter seniors, except in Montreal where the rental prices arecomparatively low.

1 INTRODUCTIONTable 1 provides a glimpse of the results that we develop in this paper. It presentsthe elderly threshold (ET) for two different sets of circumstances in each of the fivecities. The “Typical” senior owns a private automobile, a house without a mort-gage and receives occasional assistance in daily tasks such as household chores,preparing meals and personal care. The “No Assets” senior differs in that theirhousing is rented and they rely on public transportation.

Typical ET No Assets ETCity Single Couple Single CoupleHalifax 13,315 18,848 13,468 18,627Montreal 13,945 19,579 12,335 17,432Toronto 14,913 19,998 18,202 23,614Calgary 13,862 19,512 14,948 19,922Vancouver 13,618 20,200 16,335 21,759

Table 1: 2001 Elderly Threshold for two scenarios.

This study resulted from work previously done jointly by the Canadian Insti-tute of Actuaries and the University of Waterloo to see if Canadians were savingenough for retirement. Their study concluded that two-thirds of Canadians werenot saving enough for retirement. The question arose, however, as to how to mea-sure the cost of basic needs in retirement. To establish what level of income isconsidered adequate for Canadians to retire on, one could use an approach basedon “standard-of-living preservation” or based on an “adequate standard-of-livingthreshold”. For example, to investigate the risk of insufficient retirement savingsin the US, Munnell (2007) projected the replacement rates of a representative sam-ple of US households (i.e., the projected retirement income as a percent of pre-retirement income) and compared them to target rates, which varied by householdtype. A second approach could have been to compare projected retirement in-comes to an income threshold designed to satisfy the basic needs in retirement,

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irrespective of the household’s standard of living prior to retirement. The firstapproach is particularly beneficial from the individual’s perspective since it em-phasizes the importance of continuing a worker’s pre-retirement standard of livingas he/she enters retirement. At a social level, however, there is a desire that every-one has met a particular standard in order to alleviate elderly poverty. Our projectaddresses the question of adequacy using the second approach.

A basic needs threshold is generally referred to as a “poverty line”. Ratherthan focus on poverty, however, we follow the methodology of the US Elder Eco-nomic Security Standard (Russell et al., 2006) in building “a measure of incomethat older adults require to maintain their independence in the community andmeet their daily costs of living, including affordable and appropriate housing andhealth care.” In practical terms, the aim of this paper is to compute the typical costsof basic needs, rather than the minimum costs. We consider the basic needs foran elder to be food, shelter, medical, transportation, long-term care for those whorequire it, and miscellaneous expenses. For ease of language and to avoid confu-sion, in the next section we use the term “poverty line” to explain the backgroundof this topic. We expand on our objectives in Section 3. Section 4 describes ourconceptional approach to building an absolute threshold for the elderly, includingrelevant features and issues. Section 5 prices each cost component. Section 6presents our results, which we discuss in Section 7.

2 RELATIVE AND ABSOLUTEMEASURESThis section explains two distinct methodologies behind building a poverty lineand discusses the most popular measures used in Canada, including their benefitsand shortcomings.

Measures of poverty generally count the number of people who fall below apoverty threshold. There are two methods of determining this poverty threshold- absolute and relative. An absolute indicator of poverty is the cost of a house-hold’s essential goods and services that satisfies a minimum standard of living.A relative approach compares the individual’s income (or consumption) to a per-centage of the average (or median) in their surrounding population. In Canada,Statistics Canada’s Low Income Cutoff (LICO) and Low Income Measure (LIM)are the most popular relative measures. The basis of LICO is average family ex-penditures and LIM is set at 50% of median adjusted income. The most popularabsolute measure is the Market Basket Measure (MBM), introduced in 2003 byHuman Resources and Social Development Canada (HRSDC). Being an absolute

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measure, the MBM prices a specific basket of goods and services for a number ofurban communities across Canada. The MBM targets a standard-of-living abovesubsistence with some degree of social inclusion. It generally relies on mediancosts/expenditures in pricing the items in its basket. Giles (2004) described themethodology of each of these three Canadian measures. There is no official Cana-dian poverty line. Regardless, LICO, LIM and the MBM are widely used to gaugepoverty in Canada. LICO is commonly used when examining poverty over time,LIM for international poverty comparisons and the MBM when assessing differ-ences in the cost-of-living across Canada. Statistics Canada has repeatedly statedthat LICO and LIM are not measures of poverty and it does not endorse their useas such - “at most, they were meant to show to what extent some Canadians areless well-off than others” (Statistics Canada, 2004a). HRSDC has made similardisclaimers regarding the MBM.

LICO and LIM have numerous shortcomings when regarded as poverty lines.Sarlo (1996, 2001, 2006) gave a full account of their drawbacks. For example,he explained that LICO has been regarded as “unwieldy, arbitrary, purely relative,and unrelated to the actual costs of acquiring necessities”. He also felt that theMBM included items that are not basic necessities; that is, amenities whose ab-sences do not put an individual into poverty. Veall (2007) discussed the shortcom-ings of using the below-LIM rate. He explained that LIM itself is arbitrarily set at50% of median income and that the LIM rate, being a pure count, does not accountfor the depth of poverty (the distance below LIM). Norman (2000) proposed thatthe publication of the LICOs be ceased since its inaccurate measure of poverty inCanada could mislead public policy. In addition to these concerns over LICO andLIM, the role of income in assessing poverty has been widely critiqued. Hamilton(2001) displayed the limitations of income as a measure of economic well-beingby illustrating the strange outcomes of the Statistics Canada measures for a make-believe country where all workers earn the same wage and the standard of livingremains unchanged between working and retirement. Hamilton argued that usingincome to measure the economic well-being of the elderly is particularly mis-leading because, using the 1997 Survey of Consumer Spending, he found that theelderly consume a greater proportion of their income than do the non-elderly1.Sarlo also expounded on the many weaknesses in using income as an indicator ofconsumption such as the prevalence of unreported and under-reported income. He

1With the exception of one-person households of the bottom income quintile. Hamilton’s def-inition of consumption equaled total income less tax, mortgage payments, savings, gifts, occupa-tional dues, day-care costs, and the cost of providing for children.

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explained that the primary reason for an individual to under-report their incomeis to evade taxes, but there can be other motives such as not reporting incomegenerated from illegal activities.

Another popular and established absolute measure in Canada, other than theMBM, is Sarlo’s Basic Needs Poverty Line (Sarlo, 1996; 2001; 2006). Usinga market basket methodology, Sarlo designed a threshold that would satisfy thebasic necessities of life and below which real deprivation is likely to occur andpriced it for major cities across Canada. The resulting poverty line, however, waswell below the other measures listed above and, consequently, was criticized asdenoting “extreme poverty” (Osberg, 2007). Sarlo also estimated an income levelat which an individual could enjoy a reasonable level of amenities, such as givinggifts, referred to as a “social comfort line”. According to Sarlo’s definition, oncesomeone falls below the “social comfort line”, they would be considered near poorand those who fall below the Basic Needs Poverty Line are considered belowpoverty. Sarlo noted that his “social comfort line” was arbitrarily calculated asequaling twice the poverty line.

The National Council ofWelfare (1999) published a discussion paper on povertylines in Canada, with a particular focus on market basket approaches. They sim-ilarly calculated a “less statistical basket” as an alternative to the other availablemeasures, in which some of the items were duplicates of the MBM while otherswere adjusted to reflect their recommendations on market basket poverty lines.

Sarlo (1996, 2001, 2006) made a convincing argument of why poverty is an“absolute” state, signalling a lack of the necessities of life, and thus should not becalculated using relative measures. Sarlo explained that relative measures describeincome inequality rather than deprivation, and should not be used as indicators ofan adequate standard of living. The absolute poverty level measure is, however,commonly criticized as vague and subjective.

3 OBJECTIVESAmong the market basket measures listed previously - the MBM, Sarlo’s BasicNeeds Poverty Line and the National Council of Welfare’s basket - none weretailored to the elderly. The National Council of Welfare chose a reference familyof four, living in Vancouver during 1996, to illustrate the cost of each item in theirbasket. Sarlo and the MBM calculated the cost for a reference family (two adultsand two children), and then applied an equivalence scale to determine the cost forother family structures. The categories in the equivalence scale do not include

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seniors, only adults and children. The cost of basic needs for the retired elderlyare, thus, treated as those for the working non-elderly. Owing to their generallydifferent life circumstances, however, elders are likely to have different costs, aswe discuss in Section 4.1.

In the US, Russell et al. (2006) developed a new measure that suits our pur-poses entitled the Elder Economic Security Standard (Elder Standard). This stan-dard measures the absolute cost for US elders to provide for their basic needs,taking into account regional differences and various life circumstances (e.g., dif-ferent housing schemes). The Wider Opportunities for Women (WOW) and theGerontology Institute (GI) are national research partners in the “Elder EconomicSecurity Initiative”. The Elder Standard answers the questions “What is an ade-quate income for older adult households to age in place? How does it vary accord-ing to their life circumstances: whether they are living alone or with a spouse; rentor own their home; drive a car or use other transportation? How do elders’ livingcosts change as their health status and life circumstances change? What happensif they need long-term care to keep living at home?” Although the standard hasonly been applied to US data, such as the Boston area, their recent paper providesa methodology to determine the minimum standard in any US geographic area.Using their framework, we use corresponding Canadian data to produce standardsfor various cities across Canada. Any reference to the Elder Standard in this paperrefers to the Russell report.

The aim of the Elder Standard is to promote a measure that provides economicsecurity for elders without compromising their independence in the community.The measure is not, therefore, one of subsistence. Likewise, we believe that theretirement income target for our purposes should not be a poverty measure per sesince, following the methodology of Sarlo (1996, 2001), households with incomesjust below this line cannot make ends meet and are thus forced to rely on publicsubsidies to meet basic needs. Rather, we aim to measure a reasonable, but stilllow-budget, standard of living threshold for the elderly. Achieving a somewhathigher measure than subsistence is a subjective task. For example, the Elder Stan-dard chose the US Department of Agriculture (USDA) Low-Cost Food Plan ratherthan the USDA Thrifty Food Plan. The Thrifty Food Plan allows under $5 per dayfor all three meals and is the basis for Food Stamp allotments in the US. TheUSDA Low-Cost Food Plan allocates about $7 per day, which the Elder Standardidentified as a more realistic plan. In addition, in areas with sizable public transitsystems, the Elder Standard used the monthly cost of a senior transportation passrather than the cost of driving a private automobile for those elders whose healthwould continue to enable them to rely on the more affordable public transporta-

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tion. There is a balance, therefore, between independent economic security andallocating the appropriate amount for the basic needs of older adults.

A second important feature of the Elder Standard that we emulate is the goalof finding the cost for an elder to age in place with well-being, dignity and inde-pendence; that is, the cost for seniors to continue living at home with autonomyand economic security. This intent has an important bearing on our approach topricing each of the basic needs, which we demonstrate in the following three ex-amples. First, independence means that seniors have the finances to “meet theirbasic needs without income-eligible public subsidies”; consequently, no income-eligible subsidies are assumed in our pricing. Second, comparing seniors to non-seniors, transportation serves more as a tool of independence than as a means tocommute to school or work. Consequently, we price the cost of a modest au-tomobile for cases where public transportation would be difficult or impossibleowing to poor physical health. Third, we assume that seniors continue to live intheir own homes, whether they are rented, mortgaged or owned. Shelter costs donot include nursing homes; that is, services for long-term health conditions areassumed to be administered at home by a formal care provider. Also, the foodcomponent is built from a food basket that is purchased at a local supermarket,rather than the cafeteria food prices at a collective elderly living residence or thecost percentage of the bundled food and shelter price of a nursing home. Thisassumption is also closer to reality for the majority of seniors. In 2001, 93% ofCanadian seniors aged 65+ lived in private households, while the other 7% livedin collective dwellings, mainly healthcare institutions such as nursing homes andhospitals (Clark, 2005). This rate increases with age: only 2% of seniors aged65-74 resided in collective dwelling, compared to 32% of those aged 85+. Clarkfurther noted that the rate of institutionalization has decreased over time owing tothe growth in home-care programs and community supports, making it possiblefor seniors in poorer health to live in their homes longer. Another explanation be-hind the decline in institutionalization is the recent downsizing in the health caresystem (Statistics Canada, 2004b). Clark noted that seniors are statistically farless likely to move homes than younger adults. Given that one aim of our studyis to assess the amount that someone should save for retirement to cover basicneeds, we assume that the majority of people save so that they can continue tolive in their own home. Clark made a similar conclusion by noting that seniorswith higher incomes are more likely to choose to live independently and privatelyin their family home than those with lower incomes, suggesting that this is thepreferred option for those who can afford it. The “Aging in Place” feature im-plicitly assumes that continuing to live in one’s family home, and not be obliged

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to downsize, should be regarded as a basic expense for seniors. This assumption,unlike the other components of the ET, promotes some degree of continuity for anindividual as they become elderly.

A final feature of the Elder Standard that distinguishes it from previous Cana-dian measures is that it “takes into account that real costs of living vary by lifecircumstance”. Seniors live in diverse circumstances that can change suddenlysuch as the onset of a disease or the death of a spouse. Rather than build a singlemeasure for each city and household size like Sarlo or the MBM, we wish ourmeasure to allow the reader to build a threshold that is suited to a senior’s basicliving circumstances in terms of age, gender, city of residence, household size,homeowner or renter, means of transportation and health status.

4 BUILDINGANABSOLUTETHRESHOLDFORTHE ELDERLY

We ascertain from Canadian data the basic cost-of-living for both a single and acouple2 household, for those who own their own home with and without a mort-gage, those who rent, those who rely on public transportation and those who re-quire a private automobile. Finally, we look at the impact of changing healthby investigating the costs for the elderly requiring long-term care. We produceETs for five urban centres - Halifax, Montreal, Toronto, Calgary and Vancouver3.We choose major cities since the majority of the Canadian population live in ametropolitan or urban area, including three of every four seniors (Health Canadaand Interdepartmental Committee on Aging and Seniors Issues, 2002). A goodarea for future research would be to analyze the cost in small towns/rural areas.

4.1 Age, Retirement and Basic Needs SpendingThe age- and work-related effect on general expenditure is controversial4, andtheir effect on basic needs spending is also unclear. Although the elderly and non-

2Either married or common-law.3The five chosen cities are spread across Canada and each lie in a different province and rep-

resent a different region of Canada. Toronto, Montreal, Calgary and Vancouver are among the topfive largest metropolitan areas in Canada, while Halifax has the largest population among cities inthe Atlantic provinces.

4See Hamilton (2001); Alan et al. (2007); Denton, Mountain, and Spencer (2002) for Canadianperspectives.

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elderly share the same categories of needs (i.e., food, shelter, etc.), the extent oftheir need and its underlying cause could be dissimilar owing to their different lifecircumstances. For example, like the rest of the age groups, the elderly requireadequate food and housing. With advancing years, however, a senior’s out-of-pocket costs of non-insured health care generally grows from covering generalmedical needs, such as prescription drugs and medical treatments, to include alsothe expense of home support for long-term care.

Turcotte and Schellenberg (2006) showed, in their report designed to statisti-cally portray the general well-being5 of Canadian seniors, that there can be consid-erable differences between the characteristics and life circumstances of youngerand older seniors. Thus to account for the potential importance of age when pric-ing basic needs, we categorize our ETs into two age groups (65-74 and 75+) foreach household composition (single and married/common-law couple, both with-out children). We determine a couple’s age grouping by the age of the householdmaintainer6.

We expect that retirement would bring about a change in spending patterns.One reason is that retirement effectively eliminates work-related expenses such asthe additional cost of eating away from home, commuting and clothing particularto the individual’s occupation. The increase in leisure time could also positivelyor negatively affect spending. For example, food expenditures are normally lowersince retired households engage in more household production; in particular, theydevote more time to food preparation at home (Brzozowski and Lu, 2006). Onthe other hand, more leisure time could lead to more recreation, such as costlyvacations and other expensive activities. Since we are considering only basicneeds, however, we do not assess these types of voluntary costs. If our studyhad moved beyond basic needs into general needs, then our task would have beenmore difficult since general needs are completely relative and cannot be definedobjectively (Denton and Spencer, 1988).

Four additional features of this study are:

• Universal health subsidies are included in the ET because they are availableto all Canadians regardless of their salary.

• Following the example of the Elder Standard, we do not incorporate incometaxes into our calculations since income tax varies by the income’s source.

5The indicators of well-being were health, wellness, security, continuous learning, work andparticipation in society, and support and care in the community.

6This is the individual who is primarily responsible for paying the rent or the mortgage, or thetaxes, or the electricity bill, and so on, for the dwelling.

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For example, the OAS pension is taxable income while GIS is not. In ad-dition, seniors have access to many tax benefits7. The ET is, therefore, anafter-income-tax measure. We note that, all else being equal, the necessarygross income would be lower for a retired senior than a working non-seniorowing to the preferable tax treatment.

• Taxes such as GST and provincial sales tax on all goods and services pur-chased are included when applicable.

• There exist senior discount programs for goods and services, such as a 10%discount that a supplier sets on a particular day. Only one component ofour basket directly incorporates a senior’s discount - the senior public trans-portation pass.

4.2 Issues When Pricing Each Cost ComponentTo determine the cost for each component of an absolute threshold - food, shelter,medical, transportation, and miscellaneous - the developers of absolute measuresgenerally choose between:

• building a basket of goods and services to represent spending, then pricingeach item in the basket or;

• assuming the reported average consumption cost of the component fromcensus data.

The choice between a subjective evaluation of needs versus reported consumptioncosts could produce similar results for some items since the consumption levelshould equal the typical cost of the basic necessity - e.g., the median reportedrent paid in cities with low vacancy rates. Food spending data, however, could beexcessive since it could include restaurants and other amnities that are not basicnecessities. Sarlo (2001) explained that using consumption data also bears other

7For federal income taxes, the level of personal exemption for a senior can be up to $5,066higher than a non-elderly person as of 2006, the exact amount being contingent on income level.Moreover, all or part of this tax credit can be transferred to a spouse or common-law partner.There are also corresponding provincial and territorial tax credits. In addition, the first $2,000of pension income is eligible for a tax credit if the income source qualifies (for those aged 65+,nearly all pension income sources qualify except OAS, C/QPP and any foreign source pensionthat is exempt from Canadian income tax). Low-income seniors can also benefit from propertyand sales tax credits. Source: www.cra.gc.ca.

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problems such as under-reporting and the omission of government subsidies aswell as any in-kind gifts. For example, subsidized housing can create complica-tions if the amount subsidized is not reported.

Ruggles (1990) explained that bothmethods - relying on consumption data andbuilding a basket - are influenced by the actual lower income of seniors. Theirlower income leads to lower spending, which creates the appearance that they“need” less than other age groups.

The National Council of Welfare advocated for more specific baskets ratherthan percentages derived from reported survey spending. Their preference wasnot because baskets were more credible, they simply felt that readers could betterunderstand a basket of specific items than vague, general categories (for example,calculating the cost of a category such as “transportation” by pricing the actualcost of taking the bus or driving a car rather than by relying on statistics derivedfrom reported expenditure data). Taking into consideration these concerns, weendeavour to build an ET from individually priced items whenever practical, oth-erwise we rely on consumption data that represent typical costs.

In cases where we price a cost component differently between two age groupsANDwe rely on expenditure data, our results suffer from the limitations of being across-sectional study. That is, since we draw our data from a single year, any age-effects on expenditure in our results are not distinguishable from cohort-effects.The preferred approach is a longitudinal study where households are tracked overlong periods of time. A longitudinal study would have been outside our resourcesand, fortunately, there are very few cases where we rely on expenditure data andwe distinguish by age groups.

The ET, like all thresholds, is subjective and somewhat arbitrary. Seniors area diverse group whose individual circumstances necessitate different levels of fi-nancial support. Although the final value of the ET could satisfy a typical senior,it will not fit all seniors.

5 PRICING EACH COST COMPONENTThis section summarizes the cost components of the ET. The Elder Standardpriced its components with the objective to meet the needs of elders to age inplace with well-being, dignity and independence, and their conceptional frame-work served as our general model. To find Canadian costs, we combine the in-

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sight of the MBM, Sarlo, the National Council of Welfare8. Our assumptions alsoreflect our earlier discussion of the relationship between basic needs spending andan individual’s age and retirement status.

5.1 FOODThe ET assumes that seniors prepare their food from home by purchasing theitems in the Health Canada’s National Nutritious Food Basket (NNFB). The NNFBwas individually priced for each of the relevant provinces or, where possible, bythe actual city. A cost adjustment is made to reflect the economies of scale be-tween the two household compositions (couple and single).

5.1.1 Discussion

Health Canada’s National Nutritious Food Basket (NNFB) is the basis of the foodcomponent in our basket. “Health Canada developed the 1998 National NutritiousFood Basket based on the food purchasing patterns of Canadian households as re-ported in Statistics Canada’s 1992 Survey of Family Food Expenditure in Canada,Nutrition Recommendations, and the 1991 Canadian Nutrient File.”9. The NNFBassumed home food production and viewed restaurants as a luxury rather thana necessity. It only included prepared foods when it was unlikely that the itemwould be produced at home from raw ingredients, such as yogurt. This is advanta-geous to our study since this assumption of home-based food production from rawingredients is more consistent with the actual food habits of retired people thanthose in the workforce according to Brzozowski and Lu (2006). A second ben-efit of the NNFB is its consistency with the Elder Standard’s food basket, whichreflects our general objectives. For one, the Elder Standard relied on the US De-partment of Agriculture (USDA) Food Plans that, like the Health Canada NNFB,are both federal government initiatives. Second, the cost objective of the NNFBappears in line with the Elder Standard approach. The MBM (HRSDC, 2006)

8A longer review of these measures and their influence on our pricing can be found in a thirty-page appendix at www.stats.uwaterloo/stats navigation/IIPR/2008Reports/08-09.pdf, which is anexpanded version of this section. In addition, this broader version provides tables of each cost inour basket and the actual values of the Canadian 2001 measures used in this study (LIM, LICO,MBM, Sarlo’s Basic Needs Poverty Line, OAS and GIS), as well the city-specific CPI valuesemployed in our calculations. We suggest that readers who would like that information availthemselves of this broader version., and other relevant information pertaining to the elderly

9Source: Health Canada website www.hc-sc.gc.ca.

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described the NNFB as not an “ideal diet nor the cheapest diet which meets nu-tritional requirements”, rather it represented a basket of food that was nutritiousand consistent with what ordinary Canadians enjoyed eating. Similarly, the El-der Standard chose the USDA Low-Cost Food Plan over the USDA Thrifty FoodPlan since they considered the latter too frugal. Third, both food baskets showa drop in the quantity of food at older ages. The lower consumption is owingto the rationale that the elderly generally need to eat less as they age since theyrequire fewer calories on account of their reduced activity level. It could be ar-gued that seniors could continue to consume the same quantity of food and evenincrease their level of activity after retirement. We could continue to justify acheaper food plan under this scenario since a healthy, retired senior who engagesin physical activity is likely able to allocate more time to efficient shopping thanif employed. Indeed, Brzozowski and Lu (2006), who included food shoppingas a component of food production along with meal preparation and clean up,observed this trend in their data. Despite a possibly unchanging calorie intake,the retirement status of healthy, older individuals offers the opportunity to devoteadditional time to prudent grocery shopping, effectively lowering the cost of pur-chasing the Health Canada NNFB, whose agreed-upon method of pricing is to useaverage consumer prices (Nova Scotia Nutrition Council and the Atlantic HealthPromotion Research Centre, 2003). On the other hand, Ruggles (1990) arguedthat food needs could actually increase with age. She explained that, althoughthe elderly could require fewer calories, they could also require special diets withhigher costs owing to a medical condition. Also, worsening health that accompa-nies old age could limit their home food production more so than when they wereemployed. To acknowledge the added cost of being unable to prepare one’s ownmeals owing to poor health, Section 5.6 measures the associated costs of requiringhome-based assistance, including food preparation.

Unfortunately, the Prices Division of Statistics Canada did not collect the costsof the NNFB for the age groups in the five cities of interest to this study. However,many of the provinces do; we therefore rely on the pricing initiatives from eachprovince10. The 2001 monthly food costs are ascertained for each gender in thetwo age groups. The NNFB uses a cost adjustment to incorporate the economiesof scale in larger household sizes. For example, in the case of a 75-year-old malesenior living alone in Montreal, the annual cost of food consumption should in-crease by 20% (=$146 x 1.2). If that same senior lives with his spouse, however,the cost of his individual annual food consumption increases by only 10% (=$14610All information was obtained through individual correspondence.

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x 1.1) and the cost of his wife’s food also increases by only 10% (=$146 x 1.1).The adjustment is 15% for singles and 10% for couples in every city except Mon-treal, where the adjustment for singles is 20%.

5.2 SHELTERAmong typical necessities, the cost of shelter is generally highest. Owing tothe large variation that can exist between the cost of renting, owning a homemortgage-free or owning a mortgaged home, we report housing costs for eachof these alternatives for the two household compositions - single and couple -within each of the five cities. To measure the typical rental cost of shelter, weuse the 2001 Canada Mortgage and Housing Corporation (CMHC) median rentalprices for one-bedroom apartments, the 2000 Labour Force Survey (LFS) majorappliances data and the 2001 Survey of Household Spending (SHS) expendituredata on tenant insurance and utilities. We rely on the 2001 Canadian Census tofind the median housing cost for homeowners with and without a mortgage, andthe 2001 SHS household insurance expenditure data.

5.2.1 Discussion

As Michaud et al. (2004) noted, there is no single source that can adequatelyprovide the full cost of renting in Canada; consequently, we rely on many sourcesof data to measure its cost. The following bullets explain the data sources that weuse to calculate each expense.

Rental Prices: We rely on the CMHC to obtain the median rents of one-bedroomunits for each of our measured cities, as given by the CMHC through indi-vidual correspondence11.

Utilities: We use the SHS provincial data to obtain the cost of utilities for ten-ants of one-bedroom apartments. Many utilities are provincially controlled,thus relying on provincial data should be an acceptable step. The reportedutility expenditures are binary - either the respondents pay for utilities or itis included in their rent; consequently, the median utilities cost for some ofthe provinces is zero. On one hand, we do not want to use “zero” as thetypical utilities cost for renters. On the other hand, it is necessary to take

11Source: Cash Rent for one bedroom units in Private Apartments with 3 or more units, October2001, Rental Market Survey, Canada Mortgage and Housing Corporation.

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into account that some renters do not pay utilities costs since the CMHCrental price data correspondingly include rents that cover utilities costs andothers that do not. For these reasons, we depend on the average cost, ratherthan the median, to serve as the typical utilities expense for tenants.

Tenant Insurance: A household-insurance policy is a necessity since the lossof one’s shelter and belongings would be catastrophic, particularly for thepoor (Sarlo, 2001). From the SHS by special request, we obtain the me-dian expense for Canadian tenants who purchased tenant insurance for theirone-bedroom apartment, which equaled $189.50 per year. We are unableto get provincial-specific costs since the sampled number of tenants whopurchased tenant insurance for one-bedroom apartments was too small.

Major Appliances: We adjust the rental prices to take account of the potentialcosts of purchasing major appliances by following the steps taken by theMBM. Michaud et al. (2004) detailed the MBM’s method to “normalize”the rental prices across the provinces by adjusting for the impact of theinclusion of appliances. In short, we follow the MBM in making the adjust-ment by adding to the median rental price:

• the percentage of one-bedroom renters in the particular province whodid not have the particular appliance included (from the 2000 LFS rentsupplement) x

• the average annual expenditure on that appliance by Canadian house-holds with two parents and two children in the second income decile(from the MBM’s estimates in Michaud et al. (2004), who used the1997-1999 SHS).

To calculate the cost of owning a home for singles and couples, with and with-out a mortgage, we use the 2001 Canadian Census to find the total cost for utilities,mortgage payments, property taxes, and condominium fees in each city. The datasuggest an age-effect in the level of mortgage payment - the homeowner’s ma-jor payments are consistently lower for those homeowners with a mortgage aged65+ relative to those under age 6512. We do not observe this trend for homeown-ers without a mortgage, neither in the Census data nor upon deeper investigationusing SHS utility data for homeowners. Consequently, we use senior data only12With the exception of Halifax, possibly due to the low number of observations (only 21 senior

couples and 15 senior singles). We do not, therefore, make an age adjustment for Halifax.

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when calculating the cost of owning without a mortgage, but use all ages for themortgage-free homeowner cost.

A drawback of the Census data is that it does not include household insurancecosts. To determine the household insurance expense for homeowners, we relyon the 2001 SHS data to acquire the median premium paid in 2001 by single andcouple homeowners, with and without a mortgage, who purchased homeowners’insurance covering fire, theft and other perils in urban areas for each of the relevantprovinces. As the SHS does not have city-specific values, this provincial data isreasonable seeing that Property/Casualty Companies normally have five pricingregions - BC, Prairies, Ontario, Quebec and the Atlantic Region - as well as arural/urban split.

5.3 MEDICALWe rely on the 2001 SHS expenditure data to compute the cost of health care forthe two age groups in each of the relevant provinces

5.3.1 Discussion

In pricing the medical cost component, we do not price a “basket” of medicalitems and services but rely exclusively on reported expenditure data. Owing to thehuge variety of medical needs among people, Sarlo (2001) explained that buildinga health care basket would be extremely burdensome as well as ineffectual sinceit would be mostly speculation. He deemed that drawing average spending fromsurveys is an appropriate approach since it is unlikely that people spend muchbeyond their needs on medical expenses when they pay from their own pockets.Compared to the medical needs of the average family, which was Sarlo’s focus,it would be even more difficult to summarize the huge range of medical needsfor the elderly. As Denton and Spencer (1988) noted “(i)n terms of health, theelderly are the most heterogeneous age group in the population”. For even simplelack of mobility, which affects 31.5% of seniors and is the most common typeof disability among Canada’s elderly (Cossette and Duclos, 2002), there exists anabundant selection of homeopathic and allopathic therapies for each of the variouscauses, such as arthritis, diabetes and peripheral vascular diseases. The growingnumber of health conditions that accompany old age widen the range of necessarymedicines and treatments. Attempting to summarize this huge diversity of medicalneeds in a basket of goods and services for the elderly would be an even moredaunting task than attempting it for an average family. Following the approach

16

of Sarlo (2001), we determine the average medical expenses of Canadian seniorsfrom the expenditure data in the 2001 SHS. The health care cost component coversall direct costs incurred by the respondent for all personal health care received,including insurance premiums paid, eye care, dental care, prescription and non-prescription drugs, hospital charges, fees from health care professionals and healthcare supplies such as hearing aids. It does not include any amount that has beenor will be reimbursed.

All provinces offer publicly funded drug benefits for people over age 65, al-though there is considerable variation between each provincial plan owing to dif-ferences in eligibility and cost-sharing policies (Demers et al., 2008). As the goalof this study is to assess the expense of basic needs without the need to rely onpublic subsidies, we do not include in our data the health care expenditures ofthose seniors who, owing to their low incomes in 2001, would have received addi-tional reimbursements on drug expenses from provincial publicly funded plans13.

Advancing age brings about an increase in health needs. Canada’s publiclyfunded health care system serves as an enormous benefit to seniors in dampeningthe severity of rising health costs. Health Canada (2001) measured that in 2000-2001, nearly half of all health expenditures were on behalf of seniors, despiteseniors only making up 13% of the population. Despite the substantial cost reduc-tion from Canada’s health care system, medical out-of-pocket costs can be moreof an issue for elders than non-elders. This is owing to a higher need for medicalattention compounded by the lower likelihood of having private insurance. Forexample, in 2003 only 22% of women aged 75+ were covered by dental insur-ance, in contrast to the 69% of women aged 25 to 54 (Turcotte and Schellenberg,2006). In fact, the number one health care expense for seniors is health insurancespending (Chawla, 2005). Accordingly, we distinguish the health care costs byage groups 65-74 and 75+14. We would prefer more than two age groups, butthe sample sizes would be insufficient. Except for NS, the average cost increasedbetween the two ages groups in all the provinces, but the magnitude of the changewas quite different - ranging from over $300 in Alberta to nearly no change inQuebec.13In Ontario, we exclude health care expenditure data of those whose net income fell below

$16,018. In NS and Quebec, seniors lose drug coverage as their eligibility for GIS disappeared,making the choice of which respondents to exclude from the data a more difficult task. For sim-plicity, we exclude respondents whose income fell below the combined maximum GIS and OASbenefit in 2001.14The SHS reports on total expenditures per household; consequently, to find the cost for a

senior in the two age groups, we use only data of seniors living alone.

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5.4 TRANSPORTATIONWe price the transportation cost component for two categories: private automobileand public transportation. We produce the cost of owning and operating a privateautomobile by adopting the MBM’s estimates with the combination of informa-tion from the 2001 SHS, Natural Resources Canada and the Elder Standard. Weprice the cost of public transportation using the 2001 cost of senior public transitpasses for each city and adding the MBM’s estimate for taxi fares.

5.4.1 Discussion

It could seem unnecessary to calculate private automobile costs as we are con-sidering only large urban centres where there are adequate public transportationsystems. Transportation is, however, an important source of independence forseniors. We provide the cost of owning a private automobile for cases where mo-bility constraints would allow seniors to drive but would impair their ability totake public transportation, which requires its riders to climb steep stairs, walk todesignated stops and potentially stand for long periods of time when seating isno longer available. Albeit, some seniors are neither able to drive nor use pub-lic transportation, in which case they depend on informal and formal caregiversand services. We discuss these potential additional costs in Section 5.6 when wemeasure the expenses associated with long-term health conditions.

To price the cost of public transportation, we obtain the 2001 cost of seniorpublic transit passes for each city by contacting their respective public transporta-tion organization directly, and add the MBM’s estimate for taxi fares (one trip foreach adult per month, priced at $16). To produce the cost of owning and operatinga private automobile, we adopt the MBM’s estimate. It constructed the cost usingthe following items (this list is taken directly from HRSDC (2006)):

1. 20% of the cost of a five-year old, four-door, four-cylinder Chevrolet Cava-lier; including interest charges on a 36 month loan for the vehicle’s purchaseprice;

2. the annual cost of an adult driver’s license fee;

3. the annual cost of registering the vehicle;

4. the cost of annual mandatory insurance for the vehicle;

5. the cost of 1,500 litres of regular unleaded gasoline for the vehicle;

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6. the cost of two oil changes and one tune-up annually.The Prices Division of Statistics Canada collected provincial and territorial costsfor each of these components. The method was not simple and required an appre-ciable level of data investigation. A full description of the procedure was given inMichaud et al. (2004).

We note that assuming the same vehicle costs for an elderly couple as that of anadult couple and their two children could appear imprecise seeing that the elderlyare generally assumed to incur lower transportation costs given that they no longercommute to work. On the other hand, the Elder Standard report pointed out thatthis difference in mileage is partially offset by higher auto insurance rates for theelderly. Also, the other costs of owning a private automobile - the loan payments,license fee, registration fee and maintenance of the vehicle - would not be affectedby the driver’s age. Further, the MBM’s estimate was possibly on the low side inthe first place as it did not include an allowance for repair - a potentially cavalieromission in the case of a 5-year-old Chevy. Finally, the specified amount of gasconsumed per year appears to be in line with the typical elderly couple accordingto the 2001 SHS. Examining Canadian elderly couples aged 65+, their medianexpenditure on gas and fuels for private vehicles in 2001 was $1,20015. Accord-ing to Fuel Focus, Natural Resources Canada, the average retail price for regulargasoline in Canada during 2001 was $0.69 per litre, which included taxes16. Thisamounted to 1,739 liters of gas for the typical elderly couple in 2001, which sur-passes the MBM’s estimated 1,500 liters by an ample margin. For these reasons,we do not see the necessity to tailor the MBM’s procedure to the elderly. We es-timated the cost for a single elder to own and operate a private automobile to beproportionally lower than the couple value by the same percentage as the ElderStandard (i.e., 18% lower).

5.5 MISCELLANEOUSThe miscellaneous component covers essentials such as clothing, paper goods,cleaning products, household items, personal hygiene items and telephone service- and we set this fifth component equal to 20% of the total cost of the first fourcomponents15We limited the data to those elderly who spend, per year, over $50 on their vehicle and $30

or less on public transportation so as to include only those who rely on their vehicle for regulartransportation (rather than walking, cycling or public transportation).16http://www.fuelfocus.nrcan.gc.ca. We calculated this average price from the 2001 weekly

prices provided on the website.

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5.5.1 Discussion

To price the miscellaneous expense, we follow the Elder Standard’s 20% estimate.To illustrate the validity of a 20% estimate, we will consider Sarlo’s Basic NeedsPoverty Line. Sarlo priced each miscellaneous item separately and, as a percent-age of the four major components in his poverty line17, the total miscellaneouscost in each of the five relevant cities ranged between 21-29%. His measure wasintended for a reference family whose miscellaneous expenses are likely higherthan those for seniors. First, more clean-up and school supplies are necessaryfor the care of children. Second, it is probable that the clothing needs of theelderly are smaller than the members of the reference family where the parentsare working and children are still growing. Indeed, Sarlo’s clothing componentalone accounted for over half of his total miscellaneous cost for each city. Finally,numerous basic items for seniors would be carried over from before retirement,eliminating the need to purchase them while retired. As a second example, the al-ternative basket presented by the National Council of Welfare (1999), which waspriced for the reference family living in Vancouver during 1996, had a miscella-neous ratio of 21% if we followed the same ratio calculation outlined above. Ittoo priced each miscellaneous cost separately, using different approaches in pric-ing than Sarlo. Bearing the above in mind, the 20% estimate appears to be areasonable assumption.

We realize that lumping all such items into one category is vague, but it alsoallows for the fact that, owing to the range of possible health conditions and per-sonal circumstances, the personal needs of the elderly are very diverse. We feltthat listing and pricing each item would not add value. An example would be theexceptionally different personal needs of an elder who is bed-ridden, but continuesto live peacefully at home for years, versus one who remains healthy and active.

5.6 HOME-BASED LONG-TERM CARE SERVICESA senior’s need for formal help in their daily living can vary from year to year.Accordingly, we price the cost of receiving a high level of assistance, as well as alow level, using the 2001 Participation and Activity Limitation Survey.17This is the ratio of the total cost of clothing, telephone, cleaning supplies, furniture and per-

sonal care, over the total cost of the four main components: food, shelter (including home insur-ance), transportation and health care.

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5.6.1 Discussion

Assistance in daily activities can become a necessity for seniors who are limitedby long-term health conditions. In 2002, among the Canadian seniors who wereliving in private dwellings and were aged 65+, over a quarter obtained assistancewith their indoor household work, outdoor household work, shopping, transporta-tion or personal care (Turcotte and Schellenberg, 2006).

Seniors find help and support from a variety of sources, including a spouse,family, friends, as well as formal sources such as the government, paid-employeesand non-governmental organizations (ibid). Among those seniors who receivedassistance in 2002 owing to their long-term health problem, over 70% obtained itfrom informal sources while just under 50% relied on formal sources. Turcotteand Schellenberg also observed that as seniors aged, their dependence on formalcare increased. In this section, we are concerned with the out-of-pocket expensesassociated with formal care18.

We price the long-term care cost using the Statistics Canada 2001 Participa-tion and Activity Limitation Survey (PALS), which collects data on Canadianswhose health limits their everyday activity. The PALS contained questions onhow often the respondent receives help in his/her daily activity from an organiza-tion or agency, the frequency of the help and the overall out-of-pocket cost for thehelp received. A particular feature of the PALS that suits our study is that it sur-veyed only those individuals who live in private and non-institutional collectivehouseholds.

Owing to the varying need for long-term care assistance from year to year,the Elder Standard constructed and costed three long-term service packages thateach reflect a different level of help: low, medium, and high. To assess the typicalcost of home-based long-term health services in Canada, we limit the data to theelderly whose health condition necessitated that they pay for assistance in theirdaily activities and who did not receive any reimbursements from the government,private insurance or other sources. We had wished to follow the format of theElder Standard’s three care packages; on account of the data suppression19 thatoccurred when we attempted three level-of-care categories, however, we are only18Informal care serves as an enormous benefit to many seniors; in keeping with our objective of

calculating the cost of aging in place with well-being, dignity and independence, however, we donot consider its financial value in pricing the ET since it may not be a viable or welcomed optionfor some seniors.19Suppression occurred when there are fewer than 10 data points for a particular category or

when data are regarded as unreliable owing to their high variance.

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able to divide the respondents into two categories - high and low - and we areobliged to drop the minimum age from 65 to 55.

The PALS respondents were asked the frequency of the formal care that theyreceived. The daily activities that we use to classify the respondent’s level ofcare are: preparing meals, everyday housework, heavy household chores, per-sonal care, medical treatment at home and help with moving about within therespondent’s residence. We allocate respondents into the low and high categoriesby assigning points to each individual based on the frequency of help received. Inthis point system approach, each point reflects the approximate number of daysper week that the respondent received help with a particular activity. More specif-ically, we assign seven points to each “every day” response, two points to each “atleast once a week” response, and half of a point to each “less than once a week”response. We tally the points for each respondent. Respondents who require dailyhelp with four activities or more per day, and thus have a score greater than orequal to 28 (7 x 4), are assigned to the high level-ofcare category, while thoserequiring less and consequently have a score below 28 (0.5 to 27.5 points) areassigned to the low level-ofcare category. After choosing the “four activities perday” as the point of division, we also found that 28 was the median score for theentire group, making the decision rule both a sensible choice and consistent withthe typical level exhibited in the data.

The respondents were asked the total out-of-pocket cost spent in the last 12months on receiving help. They were given an option of providing an actual fig-ure or choosing a range (the ranges are given in Table 2). Confidentiality lawsbarred us from receiving actual expenditure data. By special request, we couldonly obtain from Statistics Canada the count of respondents who reported a valuewithin each range and the average response above $5,000 (see Table 2 for results).Within each range, we assume the midpoint value as the reported cost, this beingthe best approximation obtainable given the limitations of this data set. For ourbenefit, Statistics Canada removed a few extreme cases where the reported costsspent on care were between 25 and 44 times higher than the annual income for theentire household. The resulting weighted average annual expense is $989 for thelow level-of-care category and $12,951 for the high level-of-care category.

6 THE ELDERLY THRESHOLDIn this section, we tally the six components - housing, food, health care, trans-portation, miscellaneous, and long-term health care assistance - to arrive at the

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Out-of-Pocket (i) Assumed (ii)CountsExpenditure Range Expenditure Low High

Less than $200 $100 58,530 0$200 to less than $500 $350 107,220 1,830$500 to less than $1,000 $750 82,010 0$1,000 to less than $2,000 $1,500 71,190 0$2,000 to less than $5,000 $3,500 41,360 2,930$5,000 or more $15,870 (Low) 13,060 12,000

$17,180 (High)

Table 2: Results for Home-Based Long-Term-Care Assistance for People OverAge 55 Needing Two Levels of Care - Low and High. Source: Statistics Canada,2001 PALS, and author’s own calculations.

final ETs for our Canadian cities. There are 108 ETs for each city owing to thedifferent “tracks” for housing and transportation, as well as for personal traits -age, marital status and gender - and, finally, for the level of necessary long-termcare assistance. The following list provides the different tracks for each variable:

Housing (3): tenant, homeowner with a mortgage or without one;

Transportation (2): passenger of public transportation and taxi rides or privateautomobile owner;

Age (2): 65-74 or 75+ (affects cost of food and health care);

Household Size and Gender (3): single male, single female or couple (affectscost of food, shelter and owning a private automobile);

Home-Based Long-Term Care Assistance (3): none, low or high.

Tables 3 through 7 display the annual ETs for each Canadian city. In thebase scenario, we present the cost for tenants, aged 65-74, who rely on publictransportation. The single’s food expense is affected by gender, and we presentthe average cost of both genders. Below this, we proceed by listing the annual costadjustments that allow for each gender, different ages and shelter arrangements,as well as a different mode of transportation20. For example, values to the right20Note that each of the adjustment costs, except for the cost of long-term care assistance, in-

cludes an additional 20% to provide the appropriate increase in the miscellaneous expense com-ponent (see Section 5.5).

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Halifax Single CoupleExpenses (age 65-74) (age 65-74)Food 1,889 3,613Shelter (Rented) 6,940 7,120Health Care 918 1,836Transportation (Public) 653 1,306Miscellaneous 2,080 2,775Total Annual Elderly Threshold 12,479 16,649

Total Annual Cost Adjustment for Different CircumstancesGender Specific: Food (male) 256

(female) -256Age 75+: Health Care -234 -468

Food (male) 21 -275(female) -309

Shelter: Home w Mortgage 4,678 6,521Home w/o Mortgage -3,343 -3,069

Transportation: Private Automobile 3,190 3,291

Long-term-care: Low 989(per person) High 12,951

Table 3: 2001 Elderly Threshold for Halifax. Source: Author’s own calculations.

of “Transportation: Private Automobile” are the added costs to the bolded “TotalAnnual” of relying on a private automobile rather than public transportation fora single or a couple. In Table 3, to calculate the ET for an 75-year-old singlefemale Haligonian who has a mortgage and drives her own car, add - $234 - $309+ $4,678 + $3,190 to the annual total $12,479.

7 HOW DOES THE ET COMPARE?Sarlo (2001) established that the Canadian federal and provincial financial sup-port programs (Old Age Security (OAS) and the Guaranteed Income Supple-ment (GIS)) ensured that no individual fell below his Basic Needs Poverty Line.

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Montreal Single CoupleExpenses (age 65-74) (age 65-74)Food 1,947 3,570Shelter (Rented) 5,893 6,078Health Care 1,148 2,297Transportation (Public) 467 934Miscellaneous 1,891 2,576Total Annual Elderly Threshold 11,346 15,454


(female) -194Age 75+: Health Care 25 50

Food (male) 194 0(female) -194




Table 4: 2001 Elderly Threshold for Montreal. Source: Author’s own calcula-tions.

Ruggeri et al. (1994) also found that government financial support in nearly allprovinces exceeded their developed poverty line21. This section investigates thisquestion and others by comparing the ET to the 2001 maximum OAS and GISbenefit levels, as well as the commonly used Canadian “poverty lines” in 2001.To find a set of circumstances to use as a benchmark for comparisons, we firstconsider the ET for a typical senior, and then a senior who does not own anyassets.21They calculated their poverty line by adjusting LICO to account for cash benefits, employment

expenses and government taxes.

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Toronto Single CoupleExpenses (age 65-74) (age 65-74)Food 1,750 3,348Shelter (Rented) 10,608 10,709Health Care 854 1,709Transportation (Public) 1,132 2,264Miscellaneous 2,869 3,606Total Annual Elderly Threshold 17,213 21,636







Table 5: 2001 Elderly Threshold for Toronto. Source: Author’s own calculations.

7.1 A Typical SeniorSeniors are more likely to own their homemortgage-free than any other age group,thus substantially reducing shelter costs. In 2001, 75.4% of senior householdsheaded by someone aged 65-74 owned their home, and 80% of those householdsdid so mortgage-free (Turcotte and Schellenberg, 2006). Compared to the past,Turcotte and Schellenberg also showed that the proportion of senior homeownershas grown while the proportion of senior renters has dwindled.

We first consider the ET for a typical set of circumstances; that is, where thesenior owns a private automobile and their home without a mortgage. We furtherassume that the single and couple are aged 65-74, they require a low level of long-term care assistance (for the couple, we assume that both spouses require this

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Calgary Single CoupleExpenses (age 65-74) (age 65-74)Food 2,077 3,974Shelter (Rented) 8,233 8,335Health Care 1,090 2,181Transportation (Public) 232 464Miscellaneous 2,326 2,991Total Annual Elderly Threshold 13,959 17,944







Table 6: 2001 Elderly Threshold for Calgary. Source: Author’s own calculations.

care) and the single’s ET is the average of a single male and a single female. Thefollowing compares the “Typical” ETs, whose values are given in Table 1, againstthe prominent Canadian poverty measures22.22The MBM did not include health care costs. We add, therefore, our assumed medical costs

for each city to the MBM values so that they are comparable with the other measures.

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Vancouver Single CoupleExpenses (age 65-74) (age 65-74)Food 2,133 4,080Shelter (Rented) 8,909 8,910Health Care 1,070 2,139Transportation (Public) 677 1,354Miscellaneous 2,558 3,297Total Annual Elderly Threshold 15,346 19,781







Table 7: 2001 Elderly Threshold for Vancouver. Source: Author’s own calcula-tions.

Halifax Single: Sarlo < OAS/GIS < LICO < LIM < Typical ET <MBMCouple: Sarlo < LICO < LIM < OAS/GIS < Typical ET <MBM

Montreal Single: Sarlo < OAS/GIS <MBM < LIM < Typical ET < LICOCouple: Sarlo < LIM < OAS/GIS <MBM < LICO < Typical ET

Toronto Single: Sarlo < OAS/GIS < LIM < Typical ET <MBM < LICOCouple: Sarlo < LIM < OAS/GIS < LICO < Typical ET <MBM

Calgary Single: Sarlo < OAS/GIS < LIM < Typical ET <MBM < LICOCouple: Sarlo < LIM < OAS/GIS < LICO < Typical ET <MBM

Vancouver Single: Sarlo < OAS/GIS < LIM < Typical ET <MBM < LICOCouple: Sarlo < LIM < OAS/GIS < LICO < Typical ET <MBM

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This typical scenario results in a ET that is on par with the popular Canadian mea-sures for both singles and couples in all five cities. Sarlo is consistently at thebottom, but his measure is commonly criticized as being too low. For singles,LICO is usually on top and MBM is always on top for couples, except in Mon-treal.

7.2 A Senior with No AssetsWewill next consider another set of circumstances - one where the senior does notown their home or a car, and therefore relies on public transportation and rentedshelter. We refer to this as the “No Assets” ET and its values are given in Table 1.We consider this second ET for the following reasons:

• The ET is most relevant to families who are concerned about their futurefinancial resources in retirement - and Statistics Canada (2001) reportedthat 70% of family units with no private pension assets in 1999 also did notown their home.

• The “Typical” ET does not account for the wide variety of rental prices ineach city.

• The “Typical” ET is not very comparable to measures such as Sarlo and theMBM since they assumed public transportation and a rented apartment.

Halifax Single: Sarlo < OAS/GIS < LICO < LIM < No Assets ET <MBMCouple: Sarlo < LICO < LIM < OAS/GIS < No Assets ET <MBM

Montreal Single: Sarlo < OAS/GIS < No Assets ET <MBM < LIM < LICOCouple: Sarlo < No Assets ET < LIM < OAS/GIS <MBM < LICO

Toronto Single: Sarlo < OAS/GIS < LIM <MBM < LICO < No Assets ETCouple: Sarlo < LIM < OAS/GIS < LICO <MBM < No Assets ET

Calgary Single: Sarlo < OAS/GIS < LIM <MBM < No Assets ET < LICOCouple: Sarlo < LIM < OAS/GIS < LICO < No Assets ET <MBM

Vancouver Single: Sarlo < OAS/GIS < LIM <MBM < LICO < No Assets ETCouple: Sarlo < LIM < OAS/GIS < LICO < No Assets ET <MBM

The results continue to be on par with the other measures. If we consider theMBM more closely, the ET value of some cities exceeds the MBM, while oth-ers fall short. The general objectives of the MBM in terms of living standards

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are loosely in line with ours, except they allow for some luxuries such as modestrecreation and entertainment23. Consequently, these results suggest that the ba-sic cost-of-living for an elderly person is near to, or even higher than, that for anon-elderly adult. This conclusion is in opposition to the commonly held beliefthat retired seniors automatically have fewer expenses than a working non-senior.Moreover, widespread mobility constraints among the elderly could suggest thatowning a private automobile may be viewed as a necessity for some. Includingthe cost of a private automobile would produce ETs that surpass the MBM valuesin every city for both singles and couples. Further, the combined maximum GISand OAS benets do not satisfy the cost of basic needs for seniors without assets,except for couples in Montreal where the rental prices are comparatively low.

7.3 The Importance of CircumstancesWhen considering the cost of basic needs, the senior’s circumstances are critical.For example, had we assumed that a “Typical” senior owned a mortgaged home,the cost of basic needs would have jumped drastically and the ET would haveexceeded all other Canadian measures in every city for both couples and singles.Moreover, when considering only basic needs, the deterioration of health that ac-companies old age is the biggest culprit of expense in the ET - the added cost ofa high level of long-term care would more than double a couple’s basic cost-of-living in both scenarios24. On the topic of poor health, another point to considerwhen determining the cost of basic needs in retirement is the financial hardshipthat could occur if the worker is unexpectedly obliged to retire early. Unantici-pated early retirement can cause an unexpected reduction in income at retirement.Moreover, early retirement is commonly triggered by poor health25, which canlead to large necessary expenses according to our results. Consequently, poorhealth leads to the further misfortune of curtailing an individual’s ability to savewhile creating more costly basic needs.

Like the MBM and Sarlo’s Basic Needs Poverty Line, the “No Assets” ET inTable 1 illustrates the immense impact of geographical location on an individual’s23In addition,there are differences in our approach such as: 1) MBM did not price medical and

we rely on our estimates, 2) MBM used subsidized data in their rental pricing, and 3) The MBMused equivalence scales to compute the cost of a single adult or couple.24In the US Elder study, this expense was even more startling - exceeding $40,000 per year.25Hurd and Rohwedder (2005) observed that unexpected retirement resulting from poor health

was the explanation behind the above-average declines in spending after retirement in their data,during their study of the “retirement consumption puzzle” .

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primary expenses owing to the large range of rental prices across the cities. TheET for a senior renting in Toronto is almost 50% higher than for one renting inMontreal, where the rental prices are comparatively low.

Our “Typical” ET in Table 1 could appear quite modest to an individual savingfor retirement. In fact, the combination of OAS and GIS alone covers the majorityof the costs, but not all as was previously determined by Ruggeri et al. (1994) andSarlo (2001). Although the ET could provide for an elder’s basic needs, workersgenerally prefer to “enjoy their retirement” and aim to save enough disposableincome to afford joining clubs, taking classes and traveling. Determining a “socialcomfort line”, as Sarlo called it, is a very subjective task - whether it be a fixedlevel of income or replacement ratio. We are thus hesitant to promote the 2/3 ofpre-retirement salary rule of thumb, or any fixed percentage, since the proportiondepends on the worker’s circumstances and expectations after retirement ratherthan simply advancing age and current income. Having said that, however, froma policy perspective it is interesting that the No Assets ET and the Typical ET areat approximately the same levels.

8 CONCLUSIONIn this study, we calculated the absolute cost-of-living for a single elderly andan elderly couple living in five major Canadian cities during 2001. The elderlythreshold (ET) provides a general impression of the necessary after-tax incometo cover basic needs for a variety of circumstances. Although the ET featuredno entertainment or recreation spending, we found that the cost-of-living for theelderly was the same, if not greater, than non-elders living in generally the samecircumstances according to the MBM. Further, in every city examined, the ET fora typical senior was on par with LICO, and exceeded LIM as well as the maxi-mum OAS and GIS benefit rates. Our conclusions suggest that individual circum-stances, rather than age, are the primary drivers in determining the cost of basicneeds, especially health. Seniors are a diverse group, particularly with respect tohealth, so it is important that seniors and financial planners do not blindly rely ona fixed replacement ratio or universal level of income when projecting the level offinances needed to retire.

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ACKNOWLEDGEMENTSWe wish to thank Cathy Cotton and Richard Shillington for their useful insightinto the subject matter, as well as the valuable feedback from the attendees follow-ing presentations at the Socio-Economic Analysis and Modeling Division, Statis-tics Canada, and the CIA general meeting in November ’08. We would like togive a special thanks to AndrewMacKenzie from Statistics Canada for his promptassistance and valuable advice in determining the long-term health care cost com-ponent. We are also grateful for the information provided by Canada Mortgageand Housing Corporation, Statistics Canada, and the helpful representatives fromprovincial food baskets initiatives and public transportation organizations. Manythanks to the anonymous referees for their helpful comments, to Rob Dowsett forhis thorough review of an earlier version of this paper, and to Gary Mooney for hisconstructive suggestion on future lines of research. This work was carried out withthe aid of a grant from The Actuarial Foundation of Canada (Ottawa, Ontario), andwe would like to show our appreciation for their generous financial support. Thispaper was completed while Bonnie-Jeanne MacDonald occupied a Post-DoctoralPosition at the University of Waterloo. She wishes to gratefully acknowledge thefinancial support of the Natural Sciences and Engineering Research Council ofCanada.

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Brown, Robert L., and J. Liu. 2001. The shift to defined contribution pensionplans: Why did it not happen in Canada? North American Actuarial Journal 5(3):65-77.

Brzozowski, Matthew, and Y. Lu. 2006. Home Cooking, Food Consumption andFood Production among the Unemployed and Retired Households. Social andEconomic Dimensions of an Aging Population Working Paper #151. McMasterUniversity, Hamilton, ON.

Chawla, Raj K. 2005. Shifts in spending patterns of older Canadians. Perspectiveson labour and income 6(12): 17-28. Statistics Canada Catalogue no. 75-001-XIE.

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