In Australia, labour force participation among older people, particularly men over the age of
55, has been declining over the last 30 years. Previous research has found that in many
OECD countries, the retirement income system actually provides incentives for older workers
to retire early rather than remain in the work force. We use data from the first five waves of
the Household, Income and Labour Dynamics in Australia (HILDA) survey to identify any
financial incentives present in the Australian retirement income system. Following Gruber &
Wise (2004), we model retirement behaviour where individuals retire in the period that the
present value of their lifetime retirement income is maximised. We also utilise an option
value model that considers the trade-off between utility drawn from leisure and utility drawn
from labour income. Our findings suggest that for men the Australian retirement system
provides incentives to retire early, while for women financial incentives are less significant,
as the factors that influence women’s retirement behaviour are more commonly found to be
family related, rather than financial incentives.