Finding out how retirees are managing, financially and socially, should be an important on-going measure of a retirement income system’s ‘success’. It’s not all about incomes as this 2012 report from Australia illustrates. The topic is “subjective well-being” (SBW).
The report analyses how Australians have coped with the process of retiring. It uses the longitudinal survey HILDA (Household, Income and Labour Dynamics in Australia), using responses to the 2007 “module of questions focussed on retirement plans and experiences”. The respondents were those who had retired and who had worked at some time since 1990.
There are three (self-reported) measures, based on a five point scale (much worse, worse, same, better, much better):
“…the relative standard of living may provide the closest measure of the material resources available to retirees, compared to pre-retirement levels, while relative financial security is an indicator of whether retirees perceive they have the resources to continue funding a steady stream of consumption into the future. Overall happiness is a measure that encompasses the first two measures, but it also includes other factors that contribute to individuals' welfare that are not related to their financial position, such as family and other social relationships, community belonging, and health.”
A relatively small proportion report a worse post-retirement position on the two financial measures:
• “… around 19 percent of retirees feel that their standard of living is worse since retiring”;
• “…27 percent feel that their financial security is worse since retiring…”
“On the other hand, over 60 percent of retirees feel that their overall happiness is higher in retirement, again emphasising that many other factors which impact on one's happiness, besides finances, do improve with retirement.”
The things that were most likely to contributing to a deterioration were:
• “…retiring due to job loss and being forced to retire, which together lead to a 15 percentage point reduction in the likelihood of a better standard of living.”
• “Income expectation errors and own health shocks also significantly affect the relative standard of living…”
“Finally, while job loss and being forced to retire also affect relative happiness in retirement, the magnitude of the effects are much lower than for financial security and living standards. On the other hand, own health and partner's health have a stronger effect on this outcome - consistent with the greater breadth of this outcome measure.”
And “overall happiness” improved with the length of the individuals’ retirement.
So, most seemed to have managed the transition to retirement successfully. The ‘less successful’ tended to be those without partners and who did not own their own homes.
The report concludes that any policy changes should be targeted to those groups ad they are likely to be “… more effective than general policy measures affecting all households.”
PensionReforms thinks that Australian retirement income policies are already heavily directed towards those who are likely to be the most adversely affected by the transition to retirement. In fact, there isn’t a group in Australia for whom retirement saving and income support is not heavily regulated.
Regardless of how much of a ‘hands-on’ process a government might take, there will always be those who are worse-off post-retirement or who feel they are worse-off. It seems to PensionReforms that the 19% and 27% numbers at retirement are much as might be expected. If those numbers effectively ‘improve’ during retirement, that overall, long-term outcome seems acceptable. (File size 337 KB; 36 pp) 729