Research

Retirement income adequacy – the impact of renting

Super Outcomes

October 22, 2018
| Australia

While superannuation is often the second most significant asset for homeowners, it may well be the number one asset for renters.

When measuring retirement income adequacy and setting target levels of income, it is important to allow for any rental payments required during retirement, as well as any Centrelink rent assistance.  This also applies to homeowners if they still need to make mortgage repayments when they retire.

This special issue of Super Outcomes looks at the latest HILDA retirement savings data, to assess the adequacy of expected retirement incomes for the 62% who are homeowners and the 38% who rent.

We have projected the retirement incomes for each group (including superannuation, other savings and the age pension) which is then compared to both the ASFA Modest and Comfortable levels, to assess whether these levels are reached or not. Unsurprisingly, homeowners (as a group) are projected to have higher levels of retirement income adequacy than renters.

Percentage of homeowners and renters exceeding the ASFA Modest or Comfortable retirement income target

Percentage of homeowners and renters exceeding the ASFA Modest or Comfortable retirement income target

Source: Willis Towers Watson analysis

There are some marked contrasts in the results:

  • The highest levels of retirement income adequacy are projected to occur among homeowner couples with 94.7% expected to be on retirement incomes of at least the ASFA Modest level. This compares to 28.1% for renting couples.
  • The lowest levels of retirement income adequacy are projected to occur among single female renters with only 25.1% expected to be on retirement incomes of at least the ASFA Modest level. This compares to 38.9% for single male renters.

Centrelink rent assistance is indexed to CPI while actual rents have increased more strongly over the past decade, particularly in major capital cities.

For a single renter living alone, the maximum Centrelink rent assistance is $135.80 per fortnight, compared to a median rent around $400 per fortnight. The shortfall has to be met from other sources such as superannuation or the age pension, with majority of retiree renters falling below the ASFA Modest level as a result.

To improve this situation, the level of Centrelink rent assistance should be reviewed to provide more support for renters on a means-tested basis. 

Some other key findings are:

  • Renters as a group are expected to be more reliant on the age pension which forms a higher proportion of their post-retirement income.
  • The projected retirement adequacy of all groups is very dependent on the level of future investment returns earned on superannuation. To the extent that higher mortgage rates require more significant drawdowns from superannuation at retirement, this will reduce the retirement income adequacy of homeowners as the research demonstrates.

The full report also covers target retirement income, allowing for rent, the impact of mortgage repayments in retirement if superannuation is used, and the impact of investment returns.

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