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If you’re marching through middle age and renting your home, the dream of retiring might be looking more like a scrambled egg than a golden nest egg.
Australia’s retirement system is stacked in favour of people with a mortgaged or paid-off home, yet one in five retirees are renting. Housing is fast becoming the rotten egg that lands hardest on single women, divorcees and lower income earners who can’t build up large super balances or savings while also paying soaring rents.
A single renter needs a superannuation balance of $340,000 to fund a modest retirement.Credit: Getty/WAtoday
“Renters face an impossible problem,” says acting Super Consumers Australia chief executive Katrina Ellis. “They have to spend significantly more than home owners to have the same quality of life in retirement.”
Newly published figures from the Association of Superannuation Funds of Australia (ASFA) have dared put a number on the high cost of renting in retirement. It’s not pretty. According to ASFA, a single renter needs $49,044 of income each year to live modestly, compared with just $34,522 for a home owner.
Over a 30-year retirement, that’s a $435,660 gap that renters pay (ironically, enough to buy a modest apartment). The cost gap for renters shrinks a little if you’re part of a couple: about $8150 per person a year, or $489,000 between the two of you.
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And that’s just for a ‘modest’ retirement lifestyle, with budget haircuts, rudimentary health insurance, an old car and a basic one-bedroom apartment.
When you look at the amount ASFA’s Retirement Standard suggests a renter needs to accumulate in superannuation by age 67, the numbers could make Humpty Dumpty fall off his wall in shock.
A single renter needs a superannuation balance of $340,000 to fund a modest retirement. A renting couple needs $385,000 combined. Home owners, by comparison, have a dramatically lower target – just $100,000 whether single or part of a couple.
(This quirk where couples and singles require the same accumulated amount is because home owners can live modestly on the age pension with only a small super top-up.)
ASFA hasn’t crunched the annual spending or super savings required for renters to live to a more ‘comfortable’ retirement standard, which would include top private health cover, salon haircuts and confidence to run the air-con.
Mary Delahunty, chief executive of the Association of Superannuation Funds of Australia.Credit:
Actuary and superannuation expert Stephen Huppert says that’s because “the number would be too scary”.
ASFA chief Mary Delahunty explains that rent-related guidance numbers are only offered at the ‘modest’ level because people aiming for a ‘comfortable’ retirement don’t require this information.
“We wanted to provide guidance so we could talk for people without choices,” she says. “Structurally, as a nation, we need to solve the housing riddle. If people are renting as a choice – as my sister does so she can live near her grandchildren – then that’s different.”
The federal age pension pays just $30,646 a year for singles and $46,202 for couples after age 67. Rent assistance is available – up to $212 a week or $11,024 annually – but it’s clearly not enough to bridge the housing affordability gap.
Australia needs 266,300 affordable rental homes by 2041, according to WelcomeMat chief executive Matt Khoo.
“Affordable housing has an increasingly important role for people aged in their 50s, many of whom do not own their home and are currently renting,” he says.
He defines affordable housing as rentals priced 20 per cent below market rate – crucial for helping key workers like police and nurses live near their jobs, stay in work for longer and grow their retirement savings.
“The housing crisis is more than a headline, especially if you’re older, single and renting,” Huppert says.
- Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their personal circumstances before making any financial decisions.
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