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Retirement in Australia: A Closer Look at the Financial Incentives

  • Diana Warren


    (Institute of Applied Economic and Social Research, The University of Melbourne)

  • Umut Oguzoglu


    (Melbourne Institute of Applied Economic and Social Research, The University of Melbourne)

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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Paper provided by Melbourne Institute of Applied Economic and Social Research, The University of Melbourne in its series Melbourne Institute Working Paper Series with number wp2007n24.

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Length: 37 pages
Date of creation: Aug 2007
Date of revision:
Handle: RePEc:iae:iaewps:wp2007n24
Contact details of provider: Postal: Melbourne Institute of Applied Economic and Social Research, The University of Melbourne, Victoria 3010 Australia
Phone: +61 3 8344 2100
Fax: +61 3 8344 2111
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  1. Gary S. Fields & Olivia S. Mitchell, 1982. "Economic Determinants of the Optimal Retirement Age: An Empirical Investigation," NBER Working Papers 0876, National Bureau of Economic Research, Inc.
  2. Olivia S. Mitchell & John Piggott, . "Developments in Retirement Provision: Global Trends and Lessons from Australia and the US," Pension Research Council Working Papers 2000-2, Wharton School Pension Research Council, University of Pennsylvania.
  3. Atkinson & Creedy, J., 1996. "The choice of Early Retirement Age and the Australian Superannuation System," Department of Economics - Working Papers Series 503, The University of Melbourne.
  4. James H. Stock & David A. Wise, 1988. "The Pension Inducement to Retire: An Option Value Analysis," NBER Working Papers 2660, National Bureau of Economic Research, Inc.
  5. Richard Blundell & Costas Meghir & Sarah Smith, 2002. "Pension Incentives and the Pattern of Early Retirement," Economic Journal, Royal Economic Society, vol. 112(478), pages C153-C170, March.
  6. Bateman, Hazel & Piggott, John, 2001. "The Australian Approach to Retirement Income Provision," Discussion Paper 11, Center for Intergenerational Studies, Institute of Economic Research, Hitotsubashi University.
  7. Jonathan Gruber & David A. Wise, 2002. "Social Security Programs and Retirement Around the World: Micro Estimation," NBER Working Papers 9407, National Bureau of Economic Research, Inc.
  8. Nicole Watson & Mark Wooden, 2004. "The HILDA Survey Four Years On," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 37(3), pages 343-349, 09.
  9. Lixin Cai & Guyonne Kalb, 2007. "Health status and labour force status of older working-age Australian men," Australian Journal of Labour Economics (AJLE), Bankwest Curtin Economics Centre (BCEC), Curtin Business School, vol. 10(4), pages 227-252, December.
  10. 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.
  11. Glenn T. Sueyoshi, 1989. "Social Security and the Determinants of Full and Partial Retirement: A Competing Risks Analysis," NBER Working Papers 3113, National Bureau of Economic Research, Inc.
  12. 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.
  13. Jerry A. Hausman & David A. Wise, 1985. "Social Security, Health Status, and Retirement," NBER Chapters, in: Pensions, Labor, and Individual Choice, pages 159-192 National Bureau of Economic Research, Inc.
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