Staying at work can yield dividends beyond a bigger super account

More people are delaying retirement and working longer, even if part time. Not only do we need to save more for a comfortable retirement, but working helps to keep us healthy.

Data from the Australian Bureau of Statistics shows people are working longer. As reported recently by Fairfax Media, there are more than 1 million workers aged 60 and over – almost 300,000, or 40 per cent more than five years ago. The main increase in working lives is with women. Of those working into their late 60s, there are now 278,000 compared with 172,000 five years ago.

Working longer is hugely beneficial to the standard of living in retirement. There is a rough rule of thumb that says for each year someone works beyond age 55, they extend their retirement capital by about three years. That is because of the twin benefits that the money saved for retirement so far is not being used, while the superannuation guarantee paid by the employer keeps coming in.

Laura Menschik, a financial planner and director of WLM Financial Services, says the trend to work longer may also be driven by the experience of the global financial crisis when super account balances were depleted. But the benefits of working past 55 are much more than financial.

Expanding relationships

”Working for longer also helps expand social relationships,” Menschik says. ”When you retire, you have a group of friends who you have known for a long time.

”Whereas, talking to a 20-year-old and another work colleague who is having a baby gives a much broader network of people to interact with,” she says.

That is, of course, provided older workers are able to hold on to their jobs or find new employment. It means keeping up with skills, particularly in relation to technology, Menschik says.

But while more people are working longer, older workers have been contributing less to their superannuation and partially offsetting the powerful effect that working longer has on retirement savings. The latest AMP Retirement Adequacy Index shows a fall in voluntary (salary-sacrifice and after-tax) contributions to super, especially among older workers. For those aged between 60 and 64, voluntary contributions fell from 14.2 per cent of salary in 2011 to 11.7 per cent in 2012.

This data comes from members of superannuation funds run by AMP, but it is likely to be fairly representative of the broader Australian population.

A probable reason for the fall is the lowering of the salary-sacrifice cap or limit. For over 50s it was $50,000 and was lowered on July 1, last year, to the $25,000 that applies to everyone else. Subject to being passed by Parliament, the salary-sacrifice cap will be raised to $35,000 for those aged 60 and over from July 1 this year. And from July 1 next year, the higher cap will apply to over 50s.

The super paid by employers will rise from 9 per cent to 9.25 per cent of salary from July 1 this year.

The original release of this article first appeared on the website of Hangzhou Night Net.

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