Is retirement less important in an age of flexible work?

The pandemic has empowered workers to command good salaries from the comfort of their own homes. With 40% Australians now working from home, is retirement no longer a priority?

The workforce is going through a major evolution. Prior to the pandemic, most employers would balk at a worker demanding to work from home. This is no longer the case. In fact, Aussie workers are leaving jobs that won’t meet their own flexible working requirements.

Over a third (35%) of Australians said they would quit their job or start looking for another is their employer forced them to return to the office full time, according to a study released last month by the National Bureau of Economic Research.

Working and retirement

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Retirement is a relatively modern concept. The idea is widely believed to have started with German Chancellor Otto von Bismark, who in 1881 announced that those over 70 would be forced to stop working. A pension was provided to them until their death.

The concept of retirement has evolved, just as the nature of work has. At one time retirement was a necessity; workers who used their bodies for laborious jobs simply couldn’t work past a certain age. This is still a fact for many laborers and those in physically demanding roles.  

In Australia, just under half (43%) of women and over a third (37%) of men aged 45 and over are retired. The average age of retirement is 55.4 years.

The average life expectancy is 82.9 years, which means an average retirement of 27.5 years, about the same term as a home loan.

Yet older Australians are increasingly working longer, despite technically being in the ‘retirement phase’ of their life.

The workforce participation rate of older Australians (aged 65 and over) has more than doubled in the past 20 years, from 6.1% in 2001 to 15% in 2021. Increases in labour force participation for men and women over this period have been substantial—the participation rate for older men almost doubled (from 10% to 19%), while older women’s participation almost quadrupled (from 3% to 11%).

Much has been written about the importance of superannuation and retirement funding. There has also been plenty written about those who don’t plan for their retirement, or are unable to benefit from consistent superannuation contributions, and are ‘forced’ to return to work later in life.

Yet there are also reports that older Australians are eager to return to work. Figures from the Bankwest Curtin Economics Centre based on labour force estimates from the Australian Bureau of Statistics found that in May 2022 there was an estimated 171,600 Australians aged 55-64 who were unemployed but would prefer to be working if the conditions were right.

Of that number, nearly half (43.1%) were skilled and a fifth (20.2%) had degrees.

Retirement funding

Given the willingness of older Australians to work, the demand for workers, a skills shortage and incredibly flexible working conditions, it could be argued that retirement, and retirement funding in particular, is becoming less important.

If 35% of working-age Australians are willing to quit a job that requires them to return to the office, the power has well and truly shifted from employer to employee. As a result, older Australians now have greater opportunities to work remotely.

And if they are willing and able to work, they are arguably less reliant on traditional forms of retirement funding such as superannuation and the Age Pension.

Further evidence to support this is the spending behaviour of retirees.  Superannuation was introduced to provide retirees with an income that maintained their working life standard of living. But a significant portion of retirees aren’t even drawing on their super, preferring instead to preserve their nest-egg.

A recent survey by Challenger and National Seniors Australia of 3,345 older Australians found that 85% has accumulated super or adequate savings for retirement.

Over a quarter of men (26.1%) and one in four women (20.5%) intended to maintain most or all of their capital. Only one in three people were intending to draw down their capital to generate income from super in retirement.

It is easy to believe that retirement funding is critical. Perhaps it is. But the facts tell a different story. One in which older Australians are either working or willing to work at a time when conditions have never been so stacked in their favour. A good portion of Australians entering retirement today can work from home.

There is a common misconception that the bulk of retirees are living too frugally and need some prodding to consistently draw down on their super as they get older.

Ian Yates, chief executive of the Council on the Ageing (COTA), recently stated: “Rather than use their superannuation to provide a better standard of living, many older people live frugally, in fear of their own longevity, and end up dying with large superannuation balances that only benefit their inheritors. This must change.”

What if retirees enjoy living frugally? What if, after decades working and buying homes and cars and renovations and oversees holidays, they find happiness in simple thrifty living?

What if, like the workers of today, they have found a new mode of existence that simply doesn’t compute with the system?

What if the nest-egg itself gives them enough peace of mind that they can happily re-enter the workforce at 65?

Most Australians are happy with the idea of superannuation as a system of forced saving. But as a system of forced spending, it has mixed reviews.