The financial and health benefits of working into retirement

The RIR Final Report noted the labour force participation rate for Australians aged 60–64 increased 22% between April 2000 and April 2020. It argued improved health outcomes, greater workplace flexibility and higher average levels of educational attainment had contributed to many Aussies staying in the workforce to older ages and anticipated this trend was likely to continue.

ABS data in 2020 found among the 465,000 people aged 60–64 who were working full time, 151,000 intended to continue working full time, while 141,000 intend to move to part-time work. A surprising 14,100 never intend to retire.

Deciding to retire, however, isn’t always your own decision. The RIR report noted many people are forced to retire involuntarily due to ill health, job-related issues and caring responsibilities. It noted ABS surveys had found 28% of Australians retired involuntarily before age 65 and 8% after this age.

Impact of retirement on your health

Although some people are forced into retirement due to ill health, in general the decision to leave the workforce comes with a welcome boost mentally, physically and socially.

In 2020, researchers at The University of Western Australia’s Life Course Centre found strong evidence retirement improved people’s overall life satisfaction. This was due to improvements in a retiree’s satisfaction with their financial situation, free time, health and participation in local community activities.

The initial burst of satisfaction tends to be short-lived, however. The researchers found satisfaction fades after the first three years. Improvements in your financial satisfaction on retiring tend to occur only among low-income individuals.

Unfortunately, not everyone enjoys better health after they retire. A 2020 meta-analysis of 25 longitudinal studies concluded the impact of retirement on health was ‘mixed’, with some studies finding positive results and some negative.

The researchers noted on-time retirement – compared with working beyond retirement – was associated with a higher risk of mortality. They argued retirees are such a diverse group in terms of their employment and life circumstances that what happens to you in retirement is different for different people and often depends on what you do before and after leaving work.

These different experiences are mirrored in recent data from the ABS, which found only 42% of Aussies aged 65 and over rate their own health as excellent or very good. This compares to 56% of people aged 15 and over.

Mental decline in retirement?

The changes brought on by retirement are not just about your physical health. For some people, retirement leads to a deterioration in mental health and happiness, while others find a new lease on life.

According to the World Health Organization, dementia and depression are common mental health diseases in late life and these can lead to cognitive decline. In fact, a study by the  London-based Institute of Economic Affairs found the likelihood you will suffer clinical depression actually goes up by about 40% after retirement.

Fortunately for many retired Aussies, this doesn’t seem to be the case. The latest data from the ABS shows among people aged 65 and over, 9.8% have high or very high levels of psychological distress, compared to 15.1% of those aged 18–24. Older women are more likely to report high or very high levels of psychological distress compared with older men.

While many people believe retirement will see their mental abilities drop, research indicates this is not always the case.

A 2020 study in the US found not everyone who retires is at risk of cognitive decline. The study found those most at risk were retired older women who ‘disengaged’ from difficult tasks or goals and became less ambitious after they retired. These women had steeper declines in cognitive function than women who remained employed. Surprisingly, the researchers found there were no differences between retired and working men who were prone to the same disengagement.

Impact of working in retirement

Working past age 55 – or even age 65 – is increasingly common in Australia and technology that allows people to work from home or develop a side hussle is just one factor making it a more realistic prospect.

Staying at work longer can have a significant positive impact on your future retirement income. One study found delaying retirement from age 66 to 67 could increase a US retiree’s income by 7.75% due to the additional return on investment assets, potential lower cost of purchasing an annuity, additional retirement contributions during the year and higher US social security benefit.

Even deciding to delay your retirement by as little as 3–6 months can have the same impact on your standard of living in retirement as saving an additional 1% of your salary for 30 years, the same study found.

In Australia, delaying your retirement a few years can also be financially beneficial.

If you are aged 55 or over and still working, you can consider taking advantage of the benefits offered by a transition-to-retirement pension (TTR or TRIS). This type of pension allows you to supplement your salary with money you withdraw from your super once you reach your preservation age. You pay no tax on your super pension after age 60 and your employer continues to top up your super.

You also have the opportunity to take advantage of the government’s Work Bonus. This fortnightly payment of $300 is an incentive to keep people in the workforce and is not counted towards the Age Pension income test.

Deciding whether to delay retirement or return to work

There are a variety of reasons to consider when it comes to either deciding your retirement date, or even whether or not to return to work. Here’s some things to consider:

Delaying your retirement

Returning to the workforce