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This study examines the realized and projected rates of return for contributors to the Canada Pension Plan from 1968 to 2056. For this purpose, a representative agent was constituted. A steady decline in returns was observed in which the rates of return for the first generation of contributors were markedly higher than those of subsequent generations, primarily on the account of modalities for establishing benefits. The higher contribution rates for subsequent generations also played a role in the lower rates of return observed, but this factor is actually not as important as commonly believed. [ABSTRACT FROM AUTHOR]

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This paper investigates the association between population age structure, particularly the share of the population in the "prime saving years" (40 to 64), and the returns on stocks and bonds. The paper is motivated by recent claims that the aging of the "baby boom" cohort is a key factor in explaining the recent rise in asset values, and by predictions that asset prices will decline when this group reaches retirement age and begins to reduce its asset holdings. This paper begins by considering household age-asset accumulation profiles. Data from repeated cross sections of the Survey of Consumer Finances suggest that, whereas age-wealth profiles rise sharply when households are in their thirties and forties, they decline much more gradually when households are in their retirement years. When these data are used to generate "projected asset demands" based on the projected future age structure of the U.S. population, they do not show a sharp decline in asset demand between 2020 and 2050. The paper considers the historical relationship between demographic structure and real returns on Treasury bills, long-term government bonds, and corporate stock, using data from the United States, Canada, and the United Kingdom. Although theoretical models generally suggest that equilibrium returns on financial assets will vary in response to changes in population age structure, it is difficult to find robust evidence of such relationships in the time series data. This is partly due to the limited power of statistical tests based on the few "effective degrees of freedom" in the historical record of age structure and asset returns. These results suggest caution in projecting large future changes in asset values on the basis of shifting demographics. Although the projected asset demand does display some correlation with the price-dividend ratio on corporate stocks, this does not portend a sharp prospective decline in asset values, because the projected asset demand variable does not fall in future decades. [ABSTRACT FROM AUTHOR]