What influences retirement decisions?

AuthorDavey, Judith


Workforce ageing is likely to lead to labour and skills shortages. Many governments are seeking to increase workforce participation by older workers and to discourage early retirement. Thus factors that influence retirement decisions are important in both personal and policy terms. Information on a range of factors, including health and financial circumstances, is reviewed in this paper, with particular reference to New Zealand sources, especially the Health, Work and Retirement Study. The findings of the qualitative interviews that were part of this study illustrate how the influences interact, and highlight the importance of life-course factors, both personal and contextual, which underlie decisions about workforce participation in mid- and later life.


New Zealand's workforce is ageing. Its median age is projected to reach 42 in 2012 (Statistics New Zealand 2006:8). Projections indicate that labour-force growth will slow down due to population ageing and declining birth rates, and it is expected to become negative by the 2020s as large numbers of baby boomers exit the workforce, leading to labour and skills shortages (Stephenson and Scobie 2002). In a paper for the Employment of Older Workers Summit in September 2006, Judy McGregor, Human Rights Commissioner, highlighted the increase in employment rates required to maintain the labour force, even without an allowance for growth (Table 1) (McGregor 2006). By 2026, she suggests, New Zealand will need an extra 95,000 people in employment.


As they face the challenges of population ageing, governments in many developed countries are considering how to increase labour-force participation by older workers and discourage early retirement (OECD 2006). Their concerns are expressed in policy documents such as the National Strategy for an Ageing Australia, which argues that workforce participation in later life will be necessary to sustain economic growth (Andrews 2001). In the UK, Opportunity Age: Meeting the Challenges of Ageing in the 21st Century also emphasises the economic benefits of workforce participation in later life (HM Government 2005). Positive ageing policies in New Zealand seek to support "productive lives in the economy and society" (Dalziel 2001:11) and the New Zealand Positive Ageing Strategy further states that "The choice to work later in life is important in meeting the challenge of positive ageing" (Dalziel 2001:10).

There is a widespread belief that initiatives to enhance workforce participation by older workers will have advantages for the workers themselves, their employers and society as a whole. If older workers contribute less than their full economic potential due to unemployment, underemployment or premature retirement, then this will have a negative effect on economic growth. They will be contributing less as taxpayers and may be dependent on welfare benefits. At the personal level, they will be less able to set themselves up financially through saving for their old age, and they may lack the sense of social inclusion and contribution that can be derived from high-quality work.


In an article entitled "Second adolescence? The transition from paid employment", Schuller (1987) discussed the increasingly complex transition between work and retirement. He argued that just as there is no longer a simple transition from education to work, there is now another heterogeneous and ambiguous stage at the end of working life. He called this "work-ending" and emphasised the need for more research on this neglected life stage. How do individuals, as they move through their 50s and 60s, make choices about labour-force participation? What incentives and disincentives operate, and how are attitudes surrounding retirement changing? How do family circumstances and caring responsibilities impinge on working lives, productivity, career aspirations, incomes and ability to plan for retirement? Little work has been done on these questions in New Zealand, yet the answers are crucial as our population ages.


A range of personal and contextual factors are cited in the international literature in reply to this question, including:

* health status

* financial circumstances

* attachment to and conditions at work

* work-life balance

* caring and unpaid work responsibilities

* policy context

* labour market demand (Haider and Loughran 2001, Williamson and McNamara 2001, Hirsch 2003).

New Zealand evidence is available from a limited range of sources. These include the findings of the Health, Work and Retirement (HWR) study2 and the EEO Trust's Work and Age survey. (3) The HWR postal questionnaire asked all respondents (working, retired or partially retired) to indicate how important various reasons for retirement were, or could be, for them. The differences between these three groups are minor (Figure 1). The results show that the most important influences according to the proportion of respondents considering them very or moderately important, are personal or "pull" factors, such as health and wanting to do other things.

The gender differences in responses are greater than those between the retired and non-retired groups (Figure 2). Women are more likely than men to give importance to the health of family members and whether their partner is about to retire. Women are more likely to consider that not being able to find work would be an influence, as well as employers' policy on older workers. Apart from this there are no significant differences in the ranking of influences by gender.



The following sections look at each of the influences listed above individually, drawing on international and New Zealand evidence.

Health Status

New Zealanders are enjoying better health status in old age and growing life expectancy. (4) Even so, health status is an important influence on the retirement decision and was ranked first in the HWR study by both the retired and non-retired groups. One viewpoint on health came from McGregor and Gray's (2003) interviews with industrial workers. A quarter of the sample indicated that they would work past age 65 provided their health allowed them to continue in physical labour. Many indicated that they were "conserving their physical wellbeing" to continue in employment, that they would be able to recognise when they began to "drag the chain" and would then make the appropriate decision to exit the workforce.

The importance of health factors also emerged from the EEO Trust Survey. Of those still working, 75% mentioned health as a factor that would influence their retirement decision, with a higher percentage of women than men. Health ranked second after finances for people still working, but was the dominant factor for people who had already retired.

Financial Situation

Whether an individual has an economic necessity to work depends on alternative sources of income, such as pensions or superannuation, and also on their income requirements. The availability of New Zealand Superannuation (NZS) as a non-contributory universal payment provides greater certainty about retirement income than is the case in many countries. It provides a high replacement income (5) for low-income earners and beneficiaries and a moderate replacement income for average-wage earners (Periodic Report Group 2003).

Even so, a high proportion of EEO Trust respondents who were still working mentioned financial considerations as a major factor affecting retirement decisions. "Don't need to work--have enough money" ranked fourth among influences on the retirement decision in the HWR study, again being...

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