The renting trap snaring retirees – and how to avoid hefty costs

It has long been known that renting in retirement is associated with a lower quality of life.

Understanding the causal factors can help you avoid a similar fate.

There are many reasons why renting in retirement can be problematic.

For a start, figures on how much income we need to retire comfortably usually assumes that you own your home: the cost of rent isn’t included.

So, anyone using this as a guide falls well short, potentially by 20-40 per cent.

Additionally:

• rent usually eats up a larger portion of retirement income than home ownership
• over time, rents typically keep rising while mortgage debts reduce
• home ownership provides equity to use for other investments, further boosting retirement income
• downsizing homeowners can make an additional superannuation contribution from the sale proceeds, but renters cannot
• homeowners can make accessibility modifications to meet their needs as they age, such as installing ramps
• homeowners have greater stability and aren’t subject to eviction (and moving costs) at short notice.

Numerous studies have highlighted the growing scale of the problem faced by renting retirees. The Grattan Institute recently found that “two-in-three retirees who rent in the private market live in poverty” and that “most older working Australians who rent do not have sufficient savings to keep paying rent  in retirement”.

The rental trap is also not exclusive to low-income earners. Everybody’s Home recently found that Australians earning $100,000 per year – above the national median of $1396 per week ($72,592 per year) – are struggling to pay their rent.

The end result is that homelessness is a growing problem for over-55s – particularly women. The Mercy Foundation notes that homelessness among these women grew 6.6 per cent in the 2021 Census, following a huge 31 per cent increase in the 2016 Census.

There are various contributing factors that see people forced to rent later in life, including losing their home and being financially unable to replace it.

Thankfully, there are steps we  can all take to protect ourselves:

• get your foundations right for a strong financial footing – emergency fund, spending and investment plan, insurances, superannuation and estate planning
• make decisions jointly – letting your partner control finances alone means more risk for you
• have contingency plans – your own bank account, independent financial and retirement plans, insurances and back-up plans
• get into the market ASAP – even a cheap investment property far from where you live is a financial asset and a roof over your head if needed
• consider co-ownership – if you can’t afford to buy property alone, split the purchase and ongoing costs with an adult child, sibling or friend. Sub-let a room to offset the costs
• don’t settle for less – avoid accepting an unreasonable separation settlement just to resolve things quickly
• be alert – know the warning signs of scams, elder abuse, gambling addiction and domestic violence to avoid losing everything
• get independent advice – professional legal, accounting and financial advice can help you build financial independence, create safeguards and recover faster if disaster does strike.

Overall, the best thing you can do is simply to act. By being proactive instead of burying your head in the sand, your future self stands a much better chance of enjoying a comfortable retirement.

 Helen Baker is a licensed Australian financial adviser and author of the book, Money For Life: How to build financial security from firm foundations. Find out more at onyourowntwofeet.com.au

Disclaimer: The information in these articles is of a general nature only and does not constitute personal financial or product advice. Any opinions or views expressed are those of the authors and do not represent those of this publication, or people, institutions or organisations they may be associated with in a professional or personal capacity unless explicitly stated.