Report

Retirement in Australia: a closer look at the financial incentives

12 Sep 2007
Description

For men the Australian retirement system provides incentives to retire early, while for women financial incentives are less significant, as the factors that influence women’s retirement behaviour are more commonly found to be family related, rather than financial incentives. In Australia, labour force participation among older people, particularly men over the age of 55, has been declining over the last 30 years. Previous research has found that in many OECD countries, the retirement income system actually provides incentives for older workers to retire early rather than remain in the work force. This report uses data from the first five waves of the Household, Income and Labour Dynamics in Australia (HILDA) survey to identify any financial incentives present in the Australian retirement income system. Following Gruber & Wise (2004), the authors model retirement behaviour where individuals retire in the period that the present value of their lifetime retirement income is maximised. They also utilise an option value model that considers the trade-off between utility drawn from leisure and utility drawn from labour income. Their findings suggest that for men the Australian retirement system provides incentives to retire early, while for women financial incentives are less significant, as the factors that influence women’s retirement behaviour are more commonly found to be family related, rather than financial incentives.

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2007
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