The Long Goodbye

source People are living longer these days. If you’re the average Australian 65-year-old, you can now expect to live to 87 if you’re a woman and 84 if you’re a man – and that life expectancy is still rising by six or seven weeks every year.

source url Good though that news is, it creates problems. Government faces a bigger Age Pension bill. Superannuation won’t pay for retirees’ preferred lifestyle. And 65-year-olds today are generally healthier than previous retiree-age generations – so more and more would prefer to keep on doing some work.

60 sekunden broker The obvious solution to all these problems: work longer, though less intensively. Hence the rise of ‘phased retirement’ or ‘retirement transition’, where workers approaching or at retirement age reduce their workload and often change their work and even their employer – but keep on working into their late 60s or even their 70s.

cambi forex online binaire opties succes Phased retirement arrives

source url Working longer is already on the rise. Australians have historically tended to retire earlier than our overseas counterparts. But in the past decade, Australians from 55 to 65 have been much keener to stay in the workforce, and their participation rate has risen dramatically. Further, the evidence suggests that retirement is being phased as well as delayed. A 2013 Australian Bureau of Statistics analysis confirms that people nearing or past traditional retirement age are not only staying in work longer than they’d expected, but they are also more likely to be working part-time. Although data on phased retirement is sketchy, it seems that many prospective retirees have warmed to the idea in the past decade or so. The Australian Survey of Retirement Attitudes and Motivations in 2008 found that 80 per cent of baby boomers wanted a gradual transition to retirement (TTR). An Australia Institute study in 2006 found that higher-income earners in particular have been shedding any desire to retire, in favour of a different type of work, generally at lower intensity.

Some higher-income participants in The Australia Institute study said they’d love to work a four-day week and didn’t envisage ever retiring completely. (Lower-income baby boomers, especially women, talked less enthusiastically of how they had to keep working, because they had missed out on compulsory super.)

Work from home jobs oh From brawn to brain

Why the change in attitudes? Professor Deborah Cobb-Clarke, director of the Melbourne Institute and a researcher on retirement, suggests the shift from hard manual labour to office-based work stops workers from “wearing out”, and the rise in the pension age has crucially changed social norms about a ‘right’ age to quit.  A 2009 report for AMP by the National Centre for Social and Economic Modelling (NATSEM) economics unit, Don’t Stop Thinking About Tomorrow, links the later and more gradual retirement to the 2005 introduction of new and more generous TTR tax and superannuation arrangements (see breakout on page 20).

“There will still be some people who choose an age and just literally stop working,” predicts Cobb- Clarke. “But my guess is that they will be a smaller and smaller share.”

Employers show some signs of changing their attitudes as well, according to a 2011 study by Macquarie University’s Helene Mountford. There have long been concerns that employers would want to jettison older workers, but Mountford found a trend to hold on to them through the 2008/09 slowdown. She notes management guru Peter Drucker predicted in 2001 that corporate practices would have to change as older workers chose to work as part-timers, consultants and the like.

There’s still more to be done. COTA Australia, a representative body for older Australians, wants government to provide better training support for mature workers, workplace flexibility programs and a more concerted effort to tackle age discrimination. In a 2012 report, Australia’s Longevity Tsunami, the Actuaries Institute argued government needs to remove barriers to the development of more innovative retirement income products. The new advice challenge

The phased retirement trend seems set to influence millions of Australians over the coming decades. Obviously, working longer means some people will need to save less for retirement or will have more to retire with. But Cobb- Clarke notes another issue: the trend greatly complicates the task of financial advisers, including accountants. How much more or less super will be needed for someone planning a phased retirement?

“We don’t really have formulas for calculating that,” says Cobb-Clarke. As a professional herself contemplating a phased retirement some years down the track, “it would be hard for me to predict what sort of hours I’d want to work”, she adds.

Even someone moving from a full-time to a half-time role will not necessarily earn half the money, she observes. And there’s always the question: when the time comes, do I really want to do it?

Tastylia for sale'A=0 A tax standout

The good news for anyone thinking of winding down is that Australia’s retirement system stands out in making phased retirement attractive.

In most countries, when you draw on your pension to supplement your wage or business income, your income rises and there’s a good chance you’ll pay tax at a higher marginal rate. Better to retire completely and then draw down your nest egg. But as Mercer senior partner Dr David Knox notes, the reverse is true in this country (see breakout, right). The 2005 TTR arrangements mean Australian over-60s can cut their hours and top up their income with super fund income – and not pay a cent of tax on the super benefits.

Just on the basis of our tax arrangements, Australians seem set to become world leaders in phased retirement, which means a new challenge is coming at their advisers.             

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