Noel Whittaker
smh.com.au

Many older workers are deferring their retirement. Over the past 20 years, the expected retirement age in Australia has risen more than two percentage points to 65.2 for men and 64.3 for women.

A new report entitled When will I retire? The data tells the story by Terry Rawnsley, director or demographics and urban economics at accountants KPMG, details some reasons for the growth. They include strong labour markets – which help retain older workers in jobs – changing social attitudes towards senior workers, and an increasing trend towards part-time work.

Rawnsley says the length of retirement has implications for both individuals’ personal finances, and for government spending.

An increasing age of retirement indicates that businesses will be able to access skilled labour for longer. “This presents an opportunity for both workers and businesses to come together to retain skilled workers and provider older people with income, social interaction and intellectual stimulation,” he says.

The COVID-19 pandemic has played a part, too. With overseas travel almost impossible for more than 18 months, many older workers think they are better served by working longer than sitting at home with nowhere to go.

Some wannabe retirees are also taking the opportunity to top up their cash reserves. Others – a large percentage of the office workforce – are now happily working from home. Many are finding it beats both the office environment and the daily grind of commuting to and from an office.

However, there is more to the rise in retirement age than any of these reasons.

Pensionable age – that is the age that you can access the pension – is increasing to 67 for people born after January 1, 1957, so anybody who wants to retire before that age needs to ensure they have enough money to live on until they are eligible for a pension.

There are even bigger financial reasons, too. Because of the way the mathematics works, the largest increase in any long-term compounding investment, including your superannuation fund, comes right at the end of the period.

If you choose to work a little longer, there can be huge benefits to your super balance.

Every time your retirement portfolio doubles in size, there is more growth in the final double than the sum of all the other doubles combined.

The numbers are mind-blowing.

Think about a person aged 60 earning $100,000 a year with $500,000 in their super fund.

If their fund earns 8 per cent a year, their balance would be $800,000 in another five years. That is an increase of 60 per cent just by working an extra five years.

It is also recommended that you do some sort of work after you retire. Ideally, it could be part-time and add meaning to your life, as well as boosting your super at the same time. It could even be voluntary work, or working on a hobby. It’s not all about the money.

The age pension rules are geared to encourage us all to work a little: the first $150 a week you earn from a business or personal employment is exempt from Centrelink’s income test for the age pension.

Let’s look at the example a couple of pensionable age who have assessable assets of $405,000, made up of $380,000 in super and the balance in car and personal effects.

If they draw down the standard minimum of 5 per cent a year from their super fund after they retire that gives them income of $19,000 a year. If they also each earn $7800 a year from paid work, they would still be eligible to receive a full age pension of $37,923 a year. That would give them a tax-free income of more than $72,000 a year!

One of the biggest decisions you will make in your life is when to retire.

There is a wealth of research telling us that those who prepare well and plan ahead for retirement are much happier and healthier in their later years than those who suddenly find themselves out of work with no plans.

Ideally, retirement should not be something which is thrust upon you, but something you move into gradually. And remember, the longer you can defer retirement the more your super should grow – and it will last longer after you do stop work.