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The cost of renting through your retirement

Renting in retirement, rentiree, retirement planning, retirement savings, ASFA, Association of Superannuation Funds of Australia, Ross CLare, Liam Shorte, Verante Financial Planning, Mark Draper, Gem Capital, Fortnum Advisers, home-ownership,

The average age of an Australian when they achieve full home ownership is steadily rising, but what does renting in retirement mean for your savings?

Ross Clare, the director at the Association of Superannuation Funds of Australia’s (ASFA) research and resource centre, found in a recent study that the number of Australians achieving home ownership in the 30s and 40s is lower than it used to be.

While this decline is yet to be seen in Australians of traditional retirement age, it suggests that “going forward, there may be more people who don’t own their own home” and who must look to some kind of rental arrangement to support themselves, Mr Clare said.

He said there are several factors driving the decline in home ownership, noting that the average age people get married or have their first child is also increasing, and it may be too early to say what the impact will be. Nevertheless, it poses challenges for those entering, or at, retirement now who are still renting.

“Basically, as my figures show, you have to spend a lot more in retirement if you haven’t achieved home ownership” Mr Clare said.

“Eighty per cent have achieved that, some of them still have a mortgage of some size, others will be in aged care, some will be living with relatives, some will be in government housing, but for those in private rental it’s an issue now. And the indications are that it will be a bigger issue going forward, going off the housing affordability impacts.”

But just how big of an issue is it? Both Mr Clare and Liam Shorte, a financial adviser and SMSF specialist at Verante Financial Planning, estimate that those looking to rent in their retirement will need between $400,000 and $600,000 in additional savings.

“To be able to afford retirement is more a matter of savings, and the overall package of assets is not too dissimilar if you had $600,000 in superannuation and a house worth $600,000, or an apartment or unit, that sort of delivers a similar package to someone who’s retired with $1.2 million, but is funding rent,” Mr Clare said.

Mr Shorte said a retiree looking to live in Sydney would need between $22,000 and $28,000 in additional annual income to pay for a one- or two-bedroom suburban unit.

“For many, this means stepping down from a larger apartment, townhouse or house while working to a more basic unit in retirement if they wish to stay in the capital cities,” he said.

Many of Mr Shorte’s clients are beginning to build ‘granny flats’ on their children’s properties in order to escape the rental market as rents soar.

“While renting seemed fine while they were working, as they approached retirement, the rises in rent has given them reason to worry and rethink the rent for ever strategy,” he explained.

“Many of these clients work as nurses, administration staff or [are] often people divorced late in their 50s so we do need some solution that does not involve them moving out of the local suburbs where their service adds value.”

Mark Draper, a financial planner from Gem Capital, told Nest Egg that renters planning their retirement need to be thinking about managing their cash now, and the sooner they develop a plan, the better.

“They’d want to be thinking early on of saving away additional money so they have additional money in order to pay rent in retirement. I think that would be a reasonable approach,” he said.

“The average person out there is probably just spending everything they’ve got and not necessarily allocating additional money for retirement income and expecting the taxpayer to bail them out.”

However, while Mr Draper said those renting in retirement will need more savings than their home-owning peers, the age people retire also appears to be rising.

“The reality is that you’re likely to see policy keep people in the workforce for longer, the days of retiring at 55 or 60 are probably leaving us, and most people would probably want to work for longer anyway due to the social interaction and the mental aspects of being employed,” he said.

Are you planning to rent in retirement? How has this affected your retirement planning?


The cost of renting through your retirement
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