Being secure in a home you own is usually part of the picture – and costs – of life in retirement. In fact, Retirement Standard figures published by the Association of Superannuation Funds Australia (ASFA) are based on the assumption that both retired singles and couples own their home outright. This quarterly snapshot of the income you need to live a modest or comfortable lifestyle in retirement doesn’t budget for rent or ongoing mortgage repayments.

What’s the problem with renting?

According to Swinburne University Housing Professor Terry Burke, this concept of retirees as mortgage-free homeowners is a problem for our current welfare system. “Income support systems are premised on outright [home] ownership and therefore Australian pensions tend to be much lower than equivalent countries,” says Professor Burke. “So if you are still a renter, by the time you retire, you can be in real financial stress to cover the rent.[1]”

Figures for home ownership in Australia have declined in recent years – from 71% in 1994-5[2] to a current figure of 65%[3] according to the 2016 Census Survey conducted by the Australian Bureau of Statistics. However, renting in retirement isn’t all that common – yet. Figures from a 2015 Productivity Research Commission Paper on Housing Decisions of Older Australians indicate that only around 15% of older Australians are renting. The paper also refers to this minority of seniors as being “generally a highly vulnerable and economically disadvantaged group[4].”

Thanks to poor housing affordability, people who do own property are generally buying later in life and paying off their mortgage for longer. And this trend is causing real concern about the likelihood of future retirees struggling to cover the cost of a roof over their head. In their No place like home paper published in March 2017, the Australian Institute of Superannuation Trustees (AIST) presented their findings on the impact of declining home ownership on retirement.

One of the paper’s chief concerns is the amount of mortgage debt that retirees could be paying off as they start drawing on their super and the aged pension. While the 6% decline in home ownership of the last 20 years might be a slight cause for concern, the fall in the proportion of homes owned mortgage-free in the same period has been far more substantial. In 1995-6 more than three in five home owners owned their home outright. Today well over half of home owners are paying off a mortgage[5].

The report also shows the sharpest rise in mortgage liability has been among the people aged 55-64. The number of households with a mortgage in this age group rose to 44.5% in 2013-14, from 15.5% in 1995-6. In less than a decade, the number of pre-retirees with mortgage debt has almost tripled[6]. It’s no wonder the paper’s author Saul Eslake has concerns about the impact this trend will have on home owners’ super savings at retirement and their greater reliance on the aged pension as a result[7].

The silver lining for renting in retirement

Eslake also shares Professor Burke’s concerns for a new generation of retirees facing a life as tenants and the impact it could have on their overall retirement budget. But cashing in on the equity in your home and choosing to rent instead might be a more appealing option than it first seems. Renting can actually offer greater flexibility to retirees seeking the right kind of environment for their new lifestyle. And getting that location right can have tremendous benefits for health and longevity.

Michael Finke, Professor of Retirement and Personal Financial Planning at Texas Tech University has been exploring the life satisfaction of renters compared with homeowners in retirement. As a result, his top tip for a happy retirement is to rent as you grow older. “The hassles of homeownership build as you age and a house can be isolating,” says Finke. “Most people want to stay put in retirement. Yet, you need to plan for a transition to living in an environment with more social interaction and less home responsibility.[8]”

While home maintenance can certainly be a burden, it’s the isolation of living in your own home that’s likely to have the biggest impact on your health and life expectancy. A medical research study from 2010 reviewed 148 studies involving 300,000 people and found that having strong social connections could reduce your chance of death by as much as 50%. The paper famously stated that staying connected to people improves life expectancy as much as giving up smoking[9]. 

A secure future for all tenants

In spite of the added incentives for health and lifestyle, being a retiree renting in Australia can still feel like a very short-term option. Our legislation doesn’t offer much security to tenants of any age, with landlords having the right to end a tenancy outside of a fixed-term contract without giving a reason. But with renting on the rise across all generations, perhaps we’ll be seeing a change in policy and legislation to ensure all Australians can reap the benefits of a rental lifestyle with a little extra security thrown in.

Looking for help with making the right decision about where to live in retirement? Whether you’re planning to stay put, downsize or rent, a CERTIFIED FINANCIAL PLANNER^® professional can develop a strategy for having a secure income and a roof over your head throughout retirement.

[1] Domain, Generation Rent: never buying a property will mean saving more for retirement, Kirsten Robb, 21 May 2016, “Income support systems are premised on outright [home] ownership and therefore Australian pensions tend to be much lower than equivalent countries,” Swinburne University housing professor Terry Burke said. “So if you are still a renter, by the time you retire, you can be in real financial stress to cover the rent.” https://www.domain.com.au/news/generation-rent-never-buying-a-property-will-mean-saving-more-for-retirement-20160519-goxnsg/

[2] Australian Bureau of Statistics, 4130.0 – Housing Occupancy and Costs, 2011-12, 28 August 2013, “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.” http://www.abs.gov.au/ausstats/[email protected]/Previousproducts/4130.0Main%20Features22011-12?opendocument&tabname=Summary&prodno=4130.0&issue=2011-12&num=&view=

[3] Australian Bureau of Statistics, 2024.0 – Census of Population and Housing: Australia Revealed 2016, 27 June 2016 “We’re still a nation of home owners, or aspirational home owners, with 31% of Australian homes owned outright and 34% owned with a mortgage – leaving 31% being rented.” http://www.abs.gov.au/ausstats/[email protected]/mf/2024.0

[4] Australian Government Productivity Commission, Housing Decisions of Older Australians, December 2015, page 2 “About 15 per cent of older Australians are renters, and these people are generally a highly vulnerable and economically disadvantaged group.” http://www.pc.gov.au/research/completed/housing-decisions-older-australians/housing-decisions-older-australians.pdf

[5] Australian Institute of Superannuation Trustees (AIST), No place like home: the impact of declining home ownership on retirement, Saul Eslake, March 2017, page 6, “compared to 15 years ago when

almost three out of five home owners owned their home outright, home owners with a mortgage are now in the majority.” http://www.aist.asn.au/media/20734/AIST_Housing%20affordability%20and%20retirement%20incomes_FINAL%2021032017.pdf

[6] Australian Institute of Superannuation Trustees (AIST), No place like home: the impact of declining home ownership on retirement, Saul Eslake, March 2017, page 10, from 1995-96; and 44.5% of homeowners aged 55-64 had outstanding mortgage debt in 2013-14, an increase of 29 pc points – a near tripling – since 1995-96.  http://www.aist.asn.au/media/20734/AIST_Housing%20affordability%20and%20retirement%20incomes_FINAL%2021032017.pdf

[7] Australian Institute of Superannuation Trustees (AIST), No place like home: the impact of declining home ownership on retirement, Saul Eslake, March 2017, page 3 “An increasing proportion of new retirees will use some or all of their accumulated superannuation savings to discharge their outstanding mortgage debt, meaning that a higher proportion of retirees may remain wholly or partially dependent on the age pension than currently assumed.”http://www.aist.asn.au/media/20734/AIST_Housing%20affordability%20and%20retirement%20incomes_FINAL%2021032017.pdf

[8] Time.com, 5 secrets to a happy retirement, Donna Rosato, 21 January 2015, “Michael Finke, a professor of retirement and personal financial planning at Texas Tech University, analyzed the satisfaction of homeowners vs. that of renters from age 20 to 90-plus and found a drop late in life, particularly after homeowners hit their eighties.

The hassles of homeownership build as you age, Finke notes, and a house can be isolating. Most people want to stay put in retirement. Yet, says Finke, “you need to plan for a transition to living in an environment with more social interaction and less home responsibility.” http://time.com/money/3656252/happy-retirement-tips-advice/

[9] The Guardian, The town that’s found a potent cure for illness – community, George Monbiot, 21 February 2018, “A famous paper published in PLOS Medicine in 2010 reviewed 148 studies, involving 300,000 people, and discovered that those with strong social relationships had a 50% lower chance of death across the average study period (7.5 years) than those with weak connections. “The magnitude of this effect,” the paper reports, “is comparable with quitting smoking.” https://www.theguardian.com/commentisfree/2018/feb/21/town-cure-illness-community-frome-somerset-isolation