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.

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”

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.