The implications for retirement of the rise in part-time work
A recent speech by Alexandra Heath, the Head of the Economic Analysis Department at the Reserve Bank of Australia (The Evolving Australian Labour Market) noted that “The data show that part-time work and other flexible work arrangements have become more prevalent over time“. In her speech Dr Heath noted that, “For many people flexible work provides an opportunity to work and manage other commitments like study or caring responsibilities…….But for others, part-time work is less of a choice”.
For both groups, working part-time can have implications for their retirement savings and also possibly for how those savings should be invested.
The first and perhaps most obvious implication is that part-time workers are likely to reach retirement with lower superannuation balances than those who have been working full-time. Even spending a few years working part-time while raising children or studying can have a major impact on superannuation savings.
Beyond this we then need to consider whether this group, on reaching retirement, will need to invest differently due to their lower superannuation balances.
Another concern for those approaching retirement is the rise in people aged 55-64 and those over 65 with mortgage debt. This trend was highlighted by RBA Assistant Governor Michele Bullock in a speech in September 2018 (see chart). Retiring with less superannuation than hoped for but owning your own home at least puts retirees in a stronger position. Having mortgage debt in retirement adds to the stresses.
Government support via the age pension is one option to boost income in retirement for those with an inadequate superannuation balance. However, given the increase in the pension age to 67 and on again - off again plans to raise it even further to 70, this might not be viable or sufficient for many.
Although Australia does not face the pension funding challenge many developed nations are facing, current political talk about potential cuts to immigration could change that down the track.
Demographics expert Emeritus Professor Peter McDonald from The Australian National University has estimated that the percentage of the population over 65 would rise from 15 per cent today to almost 27 per cent in 2051 if the door was closed on migrants, putting a greater burden on the rest of society to fund pensions and services for those who have retired.
Another option gaining popularity with Australian retirees is to move to cheaper locations overseas, with Malaysia and Thailand being particularly popular. Of course while the cost of living might be lower in these places, retirees face a new culture and being isolated from family and friends.
Retirees and those nearing retirement have conventionally been told they should move to a more conservative or defensive asset allocation to protect their superannuation savings. For those with a fund balance large enough to provide adequate income perhaps this still makes sense. Increased longevity is however another factor to consider –with a potential life expectancy of 20-25 years at age 65, growth might still be a sensible strategy to ensure we don’t outlive our savings.
For those who through part-time work have not saved enough, it might well be that they need to consider more aggressive investment options to grow their retirement savings and hopefully arrive at a situation where strong markets deliver them a larger pool to provide income or even increased capital that can be taken out to support spending.
David McDonald, CFA
McDonald Investment Consulting
INVESTMENT THEMES & COMMUNICATION
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David McDonald is an experienced investment professional, researcher and writer. He is an independent consultant focused on researching and communicating economic, investment and industry themes.
DISCLAIMER: This article has been prepared solely for informational purposes. This information does not have regard to your financial situation or needs and must not be relied upon as financial product advice or Investment Research. You should seek professional advice, including tax advice, before making any decision based on this information. We believe that the information in this article is correct and any opinions, conclusions or recommendations are reasonably held based on the information available at the time of its compilation but no representation or warranty, either expressed or implied, is made or provided as to accuracy, reliability or completeness of any statement made in this article.
stronger position. Having mortgage debt in retirement adds to the stresses.