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Paying for our old age

By Bill Richmond - posted Tuesday, 23 September 2008

Most people are aware of, and understand, how the Australian population is “ageing” and that a larger proportion of the population is made up of “older” people. This is partly because people are now living longer.

This characteristic of Australian society raises (at least) three important questions, both for individuals and society as a whole.

How are people going to fund their “old age”?

This has always been a problem for individuals of course, but increased life expectancy has meant that it has become more of an issue and is starting to become more acute. Until the late 20th century, this didn’t loom too large in peoples’ thoughts. On average they didn’t expect to live for too many years beyond what became enshrined as the age when it was the norm to stop work. And after the (somewhat arbitrary) age of 65, the age pension could be relied upon (without any action of any sort having been taken earlier in life) to provide a modest stream of income.


There’s no indication that the pension will be abandoned. However, the absolute level (25 per cent of average earnings) means that on its own the pension constitutes only a meagre income, particularly if it is going to be required to sustain an individual over a longer span of time.

This means that individuals are going to have to give much more thought to how they fund their old age. This is already happening of course, though it tends to be something that people start thinking about as they approach “retirement” rather than earlier in life. But how individuals are going to fund the later part (as much as one quarter) of their life must become part of their thinking at an earlier stage of their life than is the case now.

This will involve thinking explicitly about how income will be derived - what the mix will be of income earned from work, and income derived from other sources, whether it is from accumulated income-bearing assets (a superannuation fund, in whatever form) or a taxpayer-funded pension.

Individuals will have to plan, as far as possible, to ensure that they are in fact productive in the sense that their labour can generate an income. Ensuring income from work or employment may be part of the plan as working for longer into life has become widely accepted as the norm, and for some individuals this may mean they can now look forward to a healthier life into their old age. This means that they have to take whatever action they can, during their lives, to ensure that they are “employable” in their later years.

If people elect not to work after a certain age, or they find that no one wants to pay them for their services, they have to be aware that they need to fall back on other sources, and be aware of what income stream this will generate.

What are people going to do in their old age?

As people age - even into what is generally regarded as old age - they may choose to spend part or all of their time working - or do so (however willingly) in order to ensure that their income is maintained at a level that they desire.


But if they prefer not to work - or for whatever reason can’t do so - they have to (on the basis of whatever income they have been able to arrange or is otherwise available to them) do something.

For most people this isn’t a problem. For them the freedom to use their time in pursuit of interests and activities that give them pleasure is welcome.

For some the cessation of work creates a vacuum, and puts them “at a loose end”. Even some activities - such as travel - are undertaken by some people more as a way of filling in time, rather than providing a satisfying experience. The phenomenon of older people waking up in the morning and wondering “how to fill in the day” is a common one. This can be the case even for people who in earlier life have undertaken activities, and held jobs, where they have influenced the course of events or the development of knowledge. In fact it often affects them more; through the onset of “relevance deprivation syndrome”.

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About the Author

Dr Bill Richmond lectures in Economics at the University of Queensland.

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