RETIREMENT INTENTIONS


INTRODUCTION

As Australia's population ages, the plans or intentions that people have for retirement are an issue that is becoming increasingly topical. The ageing of the population poses significant challenges for Australia's long-term social and economic outlook. As the proportion of the population who are of traditional working age (15-64 years) decreases over the next 40 years, it is projected that economic growth will slow, whilst spending pressures in areas such as health, age pensions, and aged care are projected to rise (end note 1). The ageing population therefore has the potential to have a large impact on the future well-being of Australian society.

Significant contributors to Australia's ageing population trend are the 'baby boomers'. In this article, a baby boomer is defined as a person born between 1946 and 1964; during the post-World War II demographic 'baby boom'. In 2007, baby boomers were aged between 42 and 61 years. This group will be moving beyond the traditional working age and into retirement in the coming years (if they have not already done so), and the impact is likely to be reflected by an overall decrease in the labour force participation rate. As such, a number of policies have been introduced which aim to increase the participation rate. Some of these policies are designed to encourage older workers to remain in the labour force longer than they otherwise would have.

Moreover, while the fertility rate in Australia has recently increased it still falls below the replacement rate, meaning that there will be insufficient numbers of young people joining the labour force to offset the numbers that are leaving (end note 2). The recent policy shift involving increased numbers of younger skilled migrants will partially offset the rate of population ageing, however the large numbers of people retiring from the labour force are still likely to be reflected in a decline in labour force participation and a possible slowing of economic growth.

Information about the plans that people have for retirement provide insight into the timing and extent of older workers exiting paid work, as well as reasons why people retire and what might encourage them to delay their retirement plans. This article highlights the retirement intentions of employed Australians aged 45 years and over and the factors that influence when they intend to retire. This information was collected as part of the Survey of Employment Arrangements, Retirement and Superannuation (SEARS) conducted throughout Australia between April and July 2007 (end note 3).

This article also examines the main sources of income that people expect to retire on, whether they expect to be self-funded during their retirement, and how long for. While this information was collected a year before the onset of the 'global financial crisis' in late 2008, it can provide some background to the potential impacts on people's superannuation and their ability to be self-funded in retirement.


OVERVIEW

In 2007, the survey estimated that there were 7.7 million people aged 45 years and over in Australia. Of these, 3.1 million (41%) were retired from the labour force; 3.9 million (50%) were currently employed; 110,700 (1%) were currently unemployed; and 574,600 (7%) were not currently in the labour force, but had not retired (end note 4).

There were more employed men aged 45 years and over than there were employed women (2.2 million, or 58% of men; compared to 1.7 million, or 44% of women). Conversely, there were more women who had retired than men (1.8 million, or 45% of women; compared to 1.3 million, or 36% of men). This partly reflects the fact that there are more women in the older age groups than men, and also reflects the tendency of women to retire earlier than men. Half of all retired people were aged 70 years and over (54% of retired men and 49% of retired women).

The baby boomer generation, who were aged between 42 and 61 years at the time of the survey, accounted for two-fifths (40%) of all employed people aged 15 years and over (39% of employed men and 41% of employed women) and the majority (87%) of employed people aged 45 years and over (85% of employed men and 90% of employed women). They also accounted for 21% of retired people aged 45 years and over (18% of retired men and 24% of retired women).

The remainder of this article analyses the 3.9 million employed people aged 45 years and over, and their plans for retirement. In addition, comparisons are made between this group's retirement plans and the currently retired population in terms of the age at which they retired, their decisions for retirement, and what their main source of income was at retirement.

Detailed information about retirement was only collected for people who had worked previously (for 2 weeks or more) and retired within the past 20 years. As retirement intentions data are only collected for people aged 45 years and over, for the purposes of this article the retired population has been restricted to those who retired within the previous 20 years and were aged 45 years and over at retirement.


RETIREMENT INTENTIONS

In 2007, there were 3.9 million employed people aged 45 years and over, of whom the majority (85%) intended to eventually retire from the labour force and mostly over the next 20 years (see Graph 1). About 15% (568,400) of employed people aged 45 years and over indicated that they did not intend to retire, and nearly two-thirds (64%) of these were men.

Of the 3.3 million people who indicated that they did intend to retire at some stage:

• 24% intended to retire aged 70 years and over (30% of men, 17% of women);
• 40% intended to retire aged 65-69 years (45% of men, 34% of women);
• 24% intended to retire aged 60-64 years (18% of men, 31% of women);
• 9% intended to retire aged 55-59 years (5% of men, 13% of women);
• 1% intended to retire aged 45-54 years (0.3% of men, 2% of women); and
• the remaining 2% did not know the age at which they would retire (2% of men, 2% of women).

The average age at which people intended to retire was 64 years (64 years for men, 62 years for women). This is 5 years later than the average age at retirement for the retirees identified in the survey. Of those who had retired in the 20 years prior to the survey, and were over the age of 45 years when they retired, the average age at retirement was 59 years (60 years for men, 57 years for women) (end note 5).

Of the 3.3 million employed people aged 45 years and over who intended to retire, 1.4 million people were only able to provide an approximate age range (of five years), while 74,400 people did not know when they intended to retire. Of the remaining 1.9 million people who were able to give an age at which the intended to retire, 19% (or 363,900 people) expected to leave the labour force and retire (with no intention of returning to paid work again) within the next 5 years. A further 29% (or 550,500 people) expected to leave in 5 to 9 years, 25% (or 480,500 people) in 10 to 14 years, 18% (or 340,900 people) in 15 to 19 years, and 8% (or 150,100 people) in 20 years or more. Over one million people plan to retire in the next ten years.

PLANS AND TRANSITIONS TO RETIREMENT

Full-time workers

Of the employed people aged 45 years and over who intended to retire, 2.4 million (71%) were working full-time. Close to half (48%) of these workers intended to leave full-time work and transition into part-time work before they retired, while 32% intended to continue with full-time work before they retired. The remaining 20% did not know whether they intended to work part-time before they retired from the labour force. A similar pattern was observed for men and women.

The average age that full-time workers intended to begin working part-time in transition to retirement was 60 years (61 years for men, 59 years for women), and the average age at which this group intended to retire from all work was 65 years (66 years for men, 64 years for women). Full-time workers who either intended to continue with full-time work until they retired, or who did not know if they would take up part-time work before retiring, intended to retire earlier at 63 years (63 years for men, 61 years for women).

Of the 1.1 million people who intended to leave full-time work and work part-time before retiring, nearly two thirds (64%) planned to change to part-time work but continue with their current employer. A further 12% intended to work part-time, change employer and change to a completely different line of work, and 5% intended to change employer and work part-time with no other plans to phase in retirement.

Of the 748,000 people who intended to continue with full time work until they retired, 69% planned to remain with their current employer with no further plans to phase in retirement. A further 18% planned to remain with their current employer but with less demanding duties, and 4% planned to remain with their current employer but either work on a contract basis or spend more time working from home.

Relatively few full-time workers who intended to continue with full time work until they retired planned to change their employer (10% or 71,600 people). Most of these either planned to change employer with no further plans to phase in retirement (25,700 people) or change employer and move to a completely different line of work (24,800 people).


Part-time workers

The majority (86%) of the 1.1 million people aged 45 years and over who were working part-time intended to retire from the labour force. The average age at which they intended to retire was 63 years (65 years for men, 62 years for women). The remaining 14% of part-time workers indicated that they did not intend to retire.


DECISIONS ABOUT WHEN TO RETIRE

'Financial security' is a major factor influencing people's decisions about when to retire, with 39% (1.3 million persons) of those intending to retire citing this as their main factor (see graph 3). For these people the average age they intended to retire at was 63 years (64 years for men, 62 years for women). With the global financial crisis negatively impacting on people's sense of financial security, some of this group may now be likely to retire later than they had originally intended.

'Personal health or physical abilities' also plays a major role in decisions about retirement, with 633,100 people (19% of those intending to retire) reporting this as the main factor influencing the timing of their retirement. The average age at which this group intended to retire was 65 years (66 years for men, 64 years for women). It is interesting to note that those who believe that their health will be the main factor that ultimately influences when they will retire, expect to retire on average 2 years later than those who think financial security will play a larger role. Health problems are hard to predict, and those not intending to retire until their health fails are likely to be hopeful that this will occur later in life; whereas those waiting for a sense of financial security before retiring would be hopeful that this could be achieved earlier. However, the unpredictability of health problems is evident when the main factors influencing retirement intentions are compared with the main reasons for retirement amongst those already retired.

Amongst the 1.8 million people who retired between 1987 and 2007, and were over the age of 45 when they retired, the most commonly reported main reason for retirement was 'personal health or physical abilities' (31%), whereas 'financial security' was only reported as the main reason for retirement by 4% of retirees. The average age at retirement for those retiring mainly due to their health was 57 years (58 years for men, 56 years for women), whereas the average age at retirement for those retiring due to financial security was 61 years (62 years for men, 59 years for women). This shows that when health problems occur their impact on people's ability to participate in the labour market can override their requirement to be financially secure, and that health problems tend to interfere with labour force participation at a younger age than the achievement of financial security.

Another unpredictable factor that influences retirement decisions is 'being retrenched or made redundant'. While less than 1% of those intending to retire expected this to be the main factor influencing their decision about when to retire, of those who retired between 1987 and 2007, 151,600 people (8%) reported this as the main reason that they retired. The average age at retirement for this group was 57 years (58 years for men, 55 years for women).

There were some sex differences in the main factors influencing the decision to retire. More women than men stated that the decisive factor was the 'retirement of (their) spouse/partner' (6% of women who intended to retire reported this, compared to 1% of men who intended to retire), or the 'need to care for (their) spouse/partner or family member' (3% of women compared to 1% of men). Conversely, more men than women gave 'financial security' as their main factor (43% of men compared to 36% of women) and the 'ability to access superannuation funds' (6% of men compared to 4% of women).

Of those who gave the 'ability to access superannuation funds' as the main factor influencing their decision about when to retire, the average age at which they intended to retire was 62 years (63 years for men, 61 years for women). This is higher than the age at which people can currently access their superannuation benefits in Australia, which is between 55 and 60 years, depending on date of birth (end note 6).

The decision about when to retire is not necessarily an individual one, as often this decision is discussed with partners (and in some cases other members of the household) to determine when it can happen and takes into consideration a number of factors. The amount of gross income that a household receives each week appears to have an impact on when people intend to retire (and is likely to be linked to their ability to be financially secure). People living in households which receive lower amounts of gross income per week intend to retire later than those households receiving higher amounts (see Graph 4).

MAIN EXPECTED SOURCE OF INCOME AT RETIREMENT

Of all employed people aged 45 years and over who intended to retire from the labour force, 43% reported that their expected main source of income at retirement would be income from 'superannuation, an annuity or allocated pension'. The average age at which this group intended to retire was 63 years (64 years for men, 62 years for women). A higher proportion of men than women reported that this would be their main source of income (49% and 36% respectively).

The second most commonly reported expected main source of income at retirement was a 'government pension or allowance', with nearly one quarter (24%) of people who intended to retire expecting that this would be their main source (23% of men and 26% of women). The average age at which this group intended to retire was 65 years (66 years for men, 64 years for women). These ages are consistent with the age eligibility requirements to access the aged pension, which are 65 years for males, and between 63 and 65 years for females, depending on their date of birth (end note 7).

There were some men (10%) and women (20%) who intended to retire from the labour force and who did not expect to have any personal income source when they retired. These people expected to live off savings, assets or their partner's income. Women expecting to live off savings, assets or their partner's income had the lowest expected average age at retirement (60 years). Just over half (51%) of the women who intended to retire between the ages of 45 and 54 years, expected to have no personal income source when they retired.

People whose main expected source of income at retirement was 'own unincorporated business income', 'rental property income', 'dividends or interest', or 'superannuation, an annuity or allocated pension' were also asked to estimate how long they expected to be self-funding after they gave up all paid work. Close to half (44%) of those who reported their expected main source of income at retirement to be from 'superannuation, an annuity, or an allocated pension' estimated that they will be self-funding for life.

Both men and women intending to be funded by 'rental property income', or 'dividends or interest', also intended to retire relatively early, at 62 years. Over half (51%) of those intending to be mainly funded by 'rental property income' intended to be self-funding for life, as did 58% of those intending to be mainly funded by 'dividends or interest'.

Generally, men who intended to live off their 'own unincorporated business income' intended to retire relatively late. The average age at which they intended to retire was 66 years, and 43% of this group intended to be self-funding for life.

There were notable differences reported by those who had already retired compared to those who intended to retire regarding their main (expected) source of income at retirement.

For those who had retired during the 20 years prior to the survey, the most common main source of income at retirement was a 'government pension or allowance' (47% of those who had already retired compared with 24% for people intending to retire). The next most common main source of income at retirement was 'no income' (living off savings, assets or their partner's income) (28% compared with 15% for people intending to retire). 'Superannuation, an annuity or allocated pension' was the main source of income at retirement for 14% of those who had retired during the 20 years prior to the survey, while almost half (43%) of those who intended to retire expected that this would be their main source of income. The change to a greater dependence on superannuation amongst future retirees reflects the impact of compulsory superannuation initiatives that were introduced in the late 1980s and early 1990s (end note 8).


INTENTIONS TO BE SELF-FUNDING IN RETIREMENT

More than half (52%) of the 3.3 million people who intended to retire intended to be self-funding in retirement; that is, their main expected source of income at retirement was 'own unincorporated business income', 'rental property income', 'dividends or interest', or 'superannuation, an annuity or allocated pension'. Most (62%) of those who intended to be self-funding were men.

Of the 1.7 million people who intended to be self-funding in retirement, 7% intended to be self-funding for 1 to 5 years, 11% for 6 to 10 years, 9% for 16 to 20 years, and 13% for 21 years or more. Almost half (45%) expected to be self-funding for life (see Graph 6). The remaining 4% did not know how long they intended to be self-funding for. There were higher proportions of women intending to be self-funding for 1 to 15 years, and higher proportions of men intending to be self-funding for 16 years to life.

More than half of the 780,600 people intending to be self-funding for life were under 55 years of age at the time of the survey (58%), and this partly reflects the large number of employed people in this age range. The age range in which there was the highest proportion of people intending to be self-funding for life was 65-69 years, and 57% of these expected to be self-funding for life.

Over half (53%) of the baby-boomers intending to retire intended to be self-funding, compared to 44% of those who were aged 62 years or over at the time of the survey. However, a lower proportion of baby boomers expected that they would be self-funding for life; 44% of baby boomers intending to be self-funding in retirement intended to be self-funding for life, compared to 54% of those aged 62 or over at the time of the survey.

SEARS 2007 found that almost a quarter (23%) of all employed people aged 45 years and over intending to retire expected to be self-funding for life. This would imply that in the future, 77% of currently employed people aged 45 years and over who intend to retire will rely on their spouse or the government as their main source of income at some point in their retirement.


FURTHER INFORMATION

For further information about people's retirement intentions presented in this article and for information about SEARS 2007 see Employment Arrangements, Retirement and Superannuation, Australia, April to July 2007 (cat. no. 6361.0).

For further information about this article, please contact Tracey Chester (ph (02) 6252 5609 or email <tracey.chester@abs.gov.au>).


END NOTES

1. Australian Government 2007, Intergenerational Report 2007, Commonwealth of Australia, Canberra.

2. ABS (Australian Bureau of Statistics) 2008, Births, Australia, 2007, cat. no. 3301.0, ABS, Canberra.

3. SEARS 2007 collected detailed information about employment arrangements, working patterns, work and caring, retirement and retirement intentions, superannuation coverage and other characteristics. For further information see Employment Arrangements, Retirement and Superannuation, Australia, April to July 2007 (cat. no. 6361.0).

4.'People who have retired from labour force' are those who had previously worked for two weeks or more, were not in the labour force and who did not intend to look for, or take up, paid work in the future.

5. It is important to note that age at retirement as presented in this publication only refers to 'surviving' retirees aged 45 years or over in 2007. Therefore, the distribution of age at retirement in this population is not representative of the age at which all people retire. For example, based on Australian life expectancy, a person who retired aged 40 years in 1982 (aged 65 years in 2007) would more likely be alive to participate in this survey than a person who retired aged 65 years in 1982 (who would be aged 90 years if still alive in 2007). Whilst this will have some effect on all age at retirement estimates, the effect would be more pronounced for estimates presented in relation to people who retired a long time ago, and in this article those who retired more than 20 years ago have been excluded from analysis.

6. Australian Government 2008, When Can I Access My Super Benefits? Australian Taxation Office. http://www.ato.gov.au/super/content.asp?doc=/content/48211.htm

7. Australian Government 2008, Eligibility for Age Pension, Centrelink. http://www.centrelink.gov.au/internet/internet.nsf/payments/age_eligible.htm

8. See AIHW (Australian Institute of Health and Welfare) 1997, '21. Superannuation in Australia' in Older Australians at a Glance, cat. no. AGE 4, AIHW, Canberra. http://www.aihw.gov.au/publications/age/oag/oag-c21.html