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Retirement in Australia: A Closer Look at the Financial Incentives

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  • Diana Warren
  • Umut Oguzoglu

Abstract

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. We use 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), we model retirement behaviour where individuals retire in the period that the present value of their lifetime retirement income is maximised. We also utilise an option value model that considers the trade-off between utility drawn from leisure and utility drawn from labour income. Our 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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Suggested Citation

  • Diana Warren & Umut Oguzoglu, 2010. "Retirement in Australia: A Closer Look at the Financial Incentives," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 43(4), pages 357-375, December.
    • Handle: RePEc:bla:ausecr:v:43:y:2010:i:4:p:357-375
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    References listed on IDEAS

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    1. Jeff Borland, 2005. "Transitions to Retirement: A Review," Melbourne Institute Working Paper Series wp2005n03, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
    2. Woodland, A D, 1987. "Determinants of the Labour Force Status of the Aged," The Economic Record, The Economic Society of Australia, vol. 63(181), pages 97-114, June.
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    Cited by:

    1. Barbara Broadway & John P. Haisken-DeNew, 2014. "The Importance of Economic Expectations for Retirement Entry," Melbourne Institute Working Paper Series wp2014n28, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
    2. Michael Littlewood, 2010. "Pre-funding a government's future financial obligations - the New Zealand Superannuation case study," New Zealand Economic Papers, Taylor & Francis Journals, vol. 44(1), pages 91-111.
    3. Diana Warren, 2013. "Retirement Decisions of Couples: The Impact of Spousal Characteristics and Preferences on the Timing of Retirement," Melbourne Institute Working Paper Series wp2013n41, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.

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