What of those who rent in retirement?

Is it even doable?

Our main topic this week shared the many ways that wealth in the home can be used to increase retirement income. But not everyone owns a home and those who don’t deserve support to fully understand all their options as well.

It was once a rule of thumb that 85% of Australian retirees lived in their own home.

This is no longer the case.

According to the Australian Government’s Retirement Income Review  (2020), 76% of retirees still own the roof over their heads, with 12% of retirees renting and another 11% living in other arrangements, often sharing with family. This is a significant change and this trend of more non-homeowners in retirement is expected to accelerate due to rising home prices and rising interest rates.  It’s not just young people that struggle to get into the market.

The April 2022 Anglicare Rental Affordability Snapshot had bad news for Age Pensioners, with a regional snapshot revealing that only one property in Dubbo was affordable for a single Age Pensioner.

The bigger picture from Anglicare is that less than one per cent (0.7%) of rental properties across Australia are affordable for couples or singles on the Age Pension.

Affordability is measured by Anglicare on the basis that rent needs to be no more than 30% of the household budget – as anything over this is judged to create financial stress and difficult or reduced choices. The affordability ranking is reached by using a range of published pension rates and include Commonwealth Rent Assistance (CRA), to then calculate the percentage of this income needed to rent properties available for rent.

According to Anglicare, factors contributing to the current ‘peak’ unaffordability include a major drop in rental listings and a halving of the vacancy rate over the past 12 months.

These sobering statistics beg the question whether renters on the full Age Pension are living a retirement lifestyle – or merely existing week to week.

The sad fact is that most single Age Pensioners who rent are living below the poverty line, in fact about 60% according to information published in the Retirement Income Review.  This is a logical conclusion when retirees are paying more than a third of fixed income just to put a roof over their heads, and then facing rising prices on household essentials such as food, petrol and medical bills.

Rental affordability may be worth considering if you are a homeowner who is currently thinking of selling up in order to free up capital to fund your retirement. Your house is an exempt asset for Age Pension entitlement. Cash from the sale of a home will eventually be deemed to be an assessable asset-. And you will then, most likely, be subject to the vagaries of an ever-tightening rental supply scenario. This is not to say that selling your home is wrong. Only you can decide that. But doing research on accommodation affordability is always wise.

If you are renting, or believe you will need to when you retire, knowing your entitlements is the first step to checking how rental affordability can affect your housing expenditure.

According to the Australian Bureau of Statistics (ABS), housing as a percentage of income for single Age Pensioners is 36% and for couple Age Pensioners is 29%.

The current maximum  rental assistance rates for Age Pensioners with no children are:

• Singles $145.80 per fortnight
• Couples (each) $137.40 per fortnight.

(For those singles who are sharing accommodation, the rental assistance is reduced to two-thirds)

Your rent needs to be a minimum amount to receive rental assistance and you receive the maximum assistance if your rent exceeds an upper threshold.  The table below, for people without dependent children,  outlines all of these.

The following example supplied by the Department of Human Services (DHS) may help you understand how these thresholds work.

• A single pensioner is paying $178.20 per fortnight in rent.
• The rent threshold is $130.20.
• For every $1.00 of rent paid that is over the threshold, the single pensioner will receive $0.75.

This equals:

• $178.20 (rent) – $130.20 (threshold) = $48.00
• $48.00 x $0.75 = $36.00.

This means the single pensioner would receive $36.00 per fortnight in rent assistance.

Unless you have a high income and choose to rent for location or flexibility reasons, renting in retirement can be a costly business. As we have seen, housing costs are the single highest expense when it comes to the budgets of low income households. Yet, as Anglicare notes, access to affordable housing makes a major positive difference to the lives of every Australian. It’s not just about the money, but also security, wellbeing and the ability to work and participate in the community of your choice.

Affordable housing really is an important aspect of retirement wellbeing.

You don’t need to apply for rental assistance.  Services Australia will assess you automatically when you claim a payment such as the Age Pension.  So the first step is to make sure you have applied for the Age Pension.  You can check your eligibility on our free  Age Pension Eligibility Calculator.

Check Your Entitlements