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Not in the Labour Force: Retirement and retirement intentions
Retirement from full-time work, for many people, marks the beginning of a period where they can pursue hobbies and other interests, or spend more time with family members - activities for which they will have had less time during the bulk of their working lives. It usually spells living on a reduced income, and might also signal other major lifestyle changes, such as moving house (or even changing location); adjusting roles in the household; and preparing for old age.
Over much of the 20th century, retirement has been a more important milestone for men than for women. While the labour force participation of women has been rising over the period, their participation in full-time employment has been lower than for men. Even over the last decade, labour force participation of women at near retirement ages was much lower than their male counterparts, and these women were more likely than men to have had a working history of part-time and casual employment (see Australian Social Trends 1998, Trends in women’s employment). For these reasons, the major focus of this article is on the retirement patterns and retirement intentions of men.
The process of retirement
The two measures given in the table on the previous page (employment status and retirement status) for men aged 45 years and over, indicate a similar pattern of increasing withdrawal from full-time work with increasing age. The proportion of men working, or seeking to work, full-time in 1997 decreased from 82% of those aged 45-54 years to 6% of those aged 65 years and over. At the same time, the proportion who had retired from full-time work increased, from 11% of those aged 45-54 years to 91% of those aged 65 years and over (when men may become eligible for the age pension).1
For the most part, withdrawal from full-time work can be linked to retirement. However, retirement is not the only reason people do not work full-time. Some may reduce their hours of work or be temporarily out of the labour force for reasons such as disability or sickness; caring for another person; or full-time study. For example, in 1997 12% of men aged 45-54 years were not in the labour force, but only 8% had fully retired. Similarly, 6% of men aged 45-54 years were working, or seeking to work, part-time, but only 2% in this age group had partially retired. These differences imply that withdrawal from full-time work may also be influenced by labour market conditions.
Conversely, retirement does not necessarily signal the end of labour force participation: some men opt to work part-time after retiring from full-time employment (are partially retired). Nevertheless, for men in each of the groups aged 45 years and over the number who said they had fully retired made up over half of those not in the labour force.
In all age groups (except the 45-54 years group), the number who had partially retired made up most of those working part-time or looking to do so. The proportion of men who had partially retired increased with age up to 65 years, indicating that some men are easing themselves out of full-time work by working part-time, before leaving the labour force altogether: a pattern that is likely to continue. For those men aged 45-54 years still working full-time in 1997 who said they intended to retire before the age of 55, 46% said they intended to work part-time after retirement.
A trend observed over recent decades is the move towards early retirement (see Australian Social Trends 1994, Early retirement among men). Using the employment status category ‘not in the labour force’ as a measure of retirement (as was used in the previous study) it would appear that this trend has continued. In both the 45-54 and the 55-59 years age groups, a larger proportion were not in the labour force in 1997 (12% and 26% respectively) than in 1992 (10% and 24% respectively). Using the retirement status category (those who have partially or fully retired) supports this viewpoint. The proportions of the 45-54 and the 55-59 years age groups who had retired from full-time work in 1997 (11% and 27%, respectively) were also slightly higher than in 1992 (9% and 26%).
Reasons for retirement
Reasons for retirement from full-time work vary by age. In 1997, for those aged under 60 years, their retirement was most commonly because of ill health or injury, particularly among those retiring before the age of 55 years, where over half of retirees gave this as the reason. Retrenchment was also given as a common reason for those aged under 60, particularly among those aged between 55 and 59 years (19%). (See Australian Social Trends 2000, Retrenchment and redundancy). However, most of those who had retired between 65 and 69 years had done so because they felt they had reached an appropriate age for retirement or because they had reached the compulsory age for retirement in their job at the time (82%).
Sources of income
With the ageing of the population, retirees are likely to make up an increasing proportion of the population over the coming decades. This has led to concerns about possible pressure on government funding for age pensions and other forms of support for older people, and has prompted legislation to encourage older people to remain in the labour force, and to improve superannuation coverage of employed people.2
There has been increased personal and public interest in people’s retirement decisions, including their means of support in old age.3 Reflecting a concern about financial security in retirement, a national study conducted by the Australian Institute of Family Studies in 1996 showed that a high proportion of working men (70%) and women (63%) between the ages of 50 and 70 years were actively preparing for retirement. This preparation was largely financial.3
In 1997, the ABS survey showed that men were most likely to have initially funded their retirement from government pensions or benefits (48%), and a further 40% through a purchased pension or annuity or from investments, savings or sales of assets.
For many people, the main source of income changes in the years following retirement. For 40% of men aged 45 years or more who were retired in 1997, their source of income had changed since they had first retired. For the most part, there was a marked increased reliance on the age or service pension, and a decrease for most other sources.
This was especially so for men who had reached the age of 65 years. Almost two thirds (65%) of retired men aged 65 years and over were relying on a government pension as their main source of income in 1997. This rise was accompanied by sharp drops in reliance on other government benefits or part-time work.
However, there was a relatively small drop, after reaching the pension eligibility age, in the proportions of men relying on a purchased pension (from 18% to 15%). This is probably because most of these people had retired after the age of 60 years, having built up their superannuation over a long period.
Among those aged 45 years and over who had retired from full-time work in 1997, some differences in income sources were evident between men and women. It would seem that the income of many women after retirement was largely dependent on that of a spouse or partner, at least initially. For example, retired women in 1997 were less likely than men to have funded their own retirement through a purchased pension or annuity or from investments, savings or sales of assets. They were much more likely to rely on someone else’s income (38%, compared with 4% for men), presumably that of their spouse or partner.
Women were less likely than men to obtain their main source of income at retirement from a government pension or benefit (33%, compared with 48%), and slightly more likely from part-time work (7%, compared with 5%). This may indicate, for some of these women, a continuation of a previous pattern of part-time and casual employment. In 1997, the age at which women could become eligible for the age pension was 61 years.1 Retired women aged 61 years and over in 1997 (72%) were even more likely than men aged 65 years and over (65%) to derive their main source of income from a government pension.
Self-funded retirement patterns
It is likely that larger proportions of future retirees will derive the main part of their income from a retirement scheme, such as superannuation, life assurance policies or similar schemes that provide financial benefit when a person leaves work. In 1997, 41% of employed men and 28% of employed women aged 45 years and over who intended to retire said they would support themselves from a purchased pension or annuity, and another 13% of men and of women from investments, savings or sales of assets during retirement, while only 21% of men and 23% of women, said their main source of income would be from an aged or other government pension or benefit.
Steady increases in retirement scheme membership have been evident since this information was first collected by the ABS in 1983, reflecting changes to superannuation legislation over the last 15 years.4 In 1997, retirement scheme membership of people aged 45 years and over who had retired was 60% (69% for men and 48% for women). This was a marked increase from 38% in 1983 (50% for men and 19% for women).
Moreover, retirement scheme membership has also increased for people aged 45 years and over who intend to retire (from 81% in 1992 to 92% 1997). Most of this increase was for superannuation scheme membership, which rose from 77% to 91% over the period.
1 Australian Bureau of Statistics 1998, Year Book Australia, 1998, cat. no. 1301.0, ABS, Canberra.
2 Rosenman, L. and Warburton, J. 1995, 'The Changing Context of Retirement in Australia', Social Security Journal, December 1995, pp. 54-66.
3 Woolcott, I. 1998, Families in later life: Dimensions of retirement, Working paper no. 14, Australian Institute of Family Studies, Melbourne.
4 Bateman, H. 1999, ‘Perspectives on Australian retirement income policy’, Australian Social Policy, vol. 1999/1, pp. 31-55.