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Renting in retirement

With renting becoming more popular with retirees, owning a home isn’t necessarily the best choice for your retirement years. Discover why becoming a tenant could be an option for you and your finances.

Is renting on the rise?

Looking at the overall trend in home ownership across Australia, we’re seeing a decline over the last five years. According to 2016 census data from the Australian Bureau of Statistics, 65.5% of Australian homes are owner occupied1, compared with 67% in 20112. It’s likely that issues with housing affordability, particularly in Sydney and Melbourne, are forcing more people to choose renting over owning, or delay the purchase of their first home.

So what does this mean for retirees, now and in the future? For the time being, renting in retirement is still relatively rare, with around 15% of older Australians living as tenants3. But with rates of homeownership falling faster among younger generations4, we could see renting in retirement becoming a lot more common in years to come.

Renting in retirement is still relatively rare, with around 15% of older Australians living as tenants.

Benefits for budget and lifestyle

Even if you live in your own home when the time comes to retire, renting can still be a compelling choice, depending on your circumstances. Here are 5 reasons why some Australians choose renting over home ownership in their senior years.

  1. Affordability - a growing number of Australians simply can’t afford to buy a home. When it comes to living in property hot spots like Sydney or Melbourne, the cost of the desired home could be out of reach, or involve taking on sizeable mortgage repayments.
  2. Try before you buy - for retirees looking for a sea change in their later years, renting can be the ideal way to try out a new location without going to the hassle and expense of buying.
  3. Invest for the best return - a home is one of the biggest assets you own. When the majority of capital is tied up in the home, this can be like putting all your eggs into one basket. For some retirees, spreading their money across different investments offers an opportunity to invest their money in other ways to generate the desired return.
  4. Create cash flow - retirees looking for an additional income stream may decide to find tenants for their property and rent elsewhere as another way to create cash flow from their home.
  5. Lifestyle choice - renting can provide retirees with the freedom to live in a location that best meets their lifestyle expectations. According to the August 2017 Milliman Retirement Expectations and Spending Report, “Suburbs popular with retirees who rent tend to be known for stress-free culture and pleasant lifestyle. While many retirees may rent out of necessity, this suggests that many retirees who rent have made an active lifestyle choice through downsizing.5

Renting can provide retirees with the freedom to live in a location that best meets their lifestyle expectations.

Is renting right for you?

Like all decisions, there’s always a flipside. Renting in retirement will significantly increase your housing costs and consume a large portion of your income. There is also the risk that your landlord could terminate your lease. This uncertainty and the practicalities of moving home later on in life could cause you unnecessary stress. If you choose to rent in retirement, also consider that you will be reliant on your landlord making the necessary modifications to the property, so that you can live comfortably as you age. These are all important considerations when deciding what’s right for you.

Whether you’re planning to stay or join the growing number of renters, seeking financial advice is important in making a decision that works for you.

Need help managing your money?

Getting expert advice can make a big difference to how prepared you are for retirement on your own. By discussing your lifestyle goals with a StatePlus financial planner you’ll have a much better understanding of the super and income you’ll need to make retirement a positive change in your life.

For more tips and tools, download our free Retirement guide or call us on 1800 620 305.

1 Australian Bureau of Statistics, Snapshot of Australia: 2016 Census Data Summary, Australian Housing, Home owned outright 31%, homes owned with a mortgage 34.5%
2 Australian Bureau of Statistics, Housing Occupancy and Costs, 2011-12, Summary of findings “The proportion of Australian households that own their own home with or without a mortgage has declined from 71% in 1994-95 to 67% in 2011-12.”
3 Productivity Commission Research Paper, Housing Decisions of Older Australians, December 2015, Page 3, “About 15 per cent of older Australians are renters”
4 Parliament of Australia Research Papers, Trends in home ownership in Australia, a quick guide, Alice Hall, 28 June 2017 “The ABS’ Survey of Income and Housing and the HILDA survey suggests an even more dramatic decline in levels of home ownership for those households with a reference person aged 25–34 years in recent years, with the ABS reporting a fall to 38.6 per cent in 2013–14, and HILDA reporting a fall to 29.2 per cent for 2014.”
5 Milliman Retirement Expectations and Spending Profiles, Q3, November 2017, page 8.
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Aware Super Pty Ltd ABN 11 118 202 672, AFSL 293340, the trustee of Aware Super ABN 53 226 460 365. Financial planning services are provided by our wholly owned financial planning business Aware Financial Services Australia Limited, ABN 86 003 742 756, AFSL No. 238430.

This information is of a general nature only and is not specific to your personal objectives, personal situation or needs. Before making any decisions based on this information you should consider its appropriateness to you. Every effort has been made to ensure the information is accurate. We strongly recommend that you consult a financial planner before taking action and review the relevant Product Disclosure Statement.

Past performance is not an indicator of future performance and future performance is not guaranteed.

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