Money
How to unlock the benefits of home ownership if you're still renting
More than a quarter of Australians over 50 don’t yet own - or even pay off - their own home - if you’re one of them then this article is for you.
By Nigel Bowen
There are few free lunches when it comes to your retirement income but holding at least $100,000 in super and owning a home that’s not counted in the Age Pension asset test is one of them.
That’s what the Association of Superannuation Funds of Australia - also known as ASFA - says Australians need to have by the age of 67 for a modest retirement in Australia.
If you want a comfortable retirement, then you need around $595,000 for a single person and $690,000 for a couple saved in super by the age of 67.
But there’s a big problem.
These figures - and those provided by Super Consumers Australia - assume people own a paid-off and mortgage-free home.
A significant minority of Australians heading towards the final chapters of their working lives are likely concerned about their post-retirement housing situation if they are still renting. And for good reason - read more about the pitfalls and benefits of renting in retirement on Citro.
As the Australian Institute of Health and Welfare noted in 2023, “Home ownership rates have also gradually decreased among people nearing retirement. Since 1996, home ownership rates for the 50–54 age group has fallen by 8 percentage points over 25 years (80% to 72%)”.
Based on data from the last Census, 72.4% of Australians born between 1967-1971 owned a home.
Public attention focuses on the difficulties those aged in their twenties and thirties have getting on the property ladder.
What’s sometimes forgotten is that all post-Boomer generations, including those now aged from their mid-forties to late-fifties, have been impacted by the rising cost of housing.
This age cohort was the first generation to discover, in substantial numbers, that they simply couldn’t afford to buy a property. Or that they couldn’t manage to get back into the property market after a financial setback like a divorce, job loss or illness of some kind.
Why home ownership pays off when you’re retired
In the old days, most Australians paid off a home while in the workforce and relied on the Age Pension after retiring.
Historically, Age Pension rates have been set on the assumption that most people claiming it would have a paid-off home and minimal housing-related costs ( just council rates, utilities, maintenance and insurance).
The maximum basic rate of the Age Pension for a single person, including various ‘supplements’, currently comes to $1116.30 a fortnight or $558.15 a week. At the time of writing, the median weekly rent in Australia is $627.
The obvious downside of not owning your own home is that you may struggle to afford housing when you’re no longer earning an income.
But there’s a further significant downside.
Your home – this can include a caravan or boat, as well as a house or unit – isn’t counted as an asset when you apply for the Age Pension.
You can live in a home worth $2 million or more and still get the Age Pension.
(Non-housing assets are very much counted, which means you definitely won’t get the Age Pension if you hold millions in a property or share portfolio.)
Non-homeowners do have a slightly higher ‘asset value’ cut-off than homeowners.
Single propertied retirees miss out on a full Age Pension if they have assets over $301,750, while the cut-off for their non-homeowning peers is $543,750.
Nonetheless, given the advantages, both material and psychological, of owning a paid-off home, many Australians focus on getting their mortgage paid off before retiring. Even if this means they must liquidate other assets.
You have more retirement options than you think, even if you're renting
All those over 40 have been caught up in the switch from one system (most Australians relying on the Age Pension) to another (most Australians relying on their super nest egg).
Boomers typically have the advantage of retiring with a paid-off home but the disadvantage of a modest super balance. In contrast, the post-Boomer generations have experienced greater trouble getting a toehold on the property ladder but will retire with more substantial super balances than Boomer predecessors.
It’s these super balances, combined with later-in-life property inheritances in some cases, that will give many middle-aged Australian renters the belated opportunity to enter (or re-enter) the property market.
Let’s take the case of a single, male, lifetime renter Gen Xer called Gary, who will retire with a super balance of around $400,000. For the sake of simplicity, let’s assume Gary has no assets and won’t be receiving an inheritance but has $80,000 in savings.
Gary can ‘leverage’ his super balance in at least 2 ways to get into the property market.
While still working, he could use his savings as a deposit and, for instance, purchase a property worth around $400,000.
Like almost all new homeowners, Gary will be under financial stress.
But unlike many homeowners, Gary will – once he reaches preservation age (60) – be able to start ‘drawing down’ some of his super money and put that towards paying down his mortgage.
(See here for more information about accessing some of your super money while still working but ‘transitioning to retirement’.)
Of course, Gary will also be able to stop paying off someone else’s mortgage and start paying off his own if he goes from a renter to an owner.
Alternatively, Gary could rent until he turns 67, withdraw all his super money as a lump sum, and buy a $400,000 property outright. The downside is that Gary now has no super. The upside is that he now has a roof over his head and should qualify for the Age Pension.
But wait, there’s more!
Federal, state and territory governments have long offered various forms of assistance to those attempting to get a toehold on the first rung of the property ladder.
For obvious reasons, most of these initiatives are aimed at younger Australians, but they are usually available to those of any age.
In some cases, the assistance is even specifically targeted at older Australians. For instance, the NSW Government has a ‘Shared Equity’ program that contributes 30%-40% towards the purchase price of a home. Among other demographics, this program is aimed at “older singles aged 50 years or above” and “single parents with a dependent child or children”.
In our hypothetical example, if Gary qualified for NSW’s shared equity program, he could either have purchased a more expensive property or still purchased a $400,000 one but only needed to put $240,000 - $280,000 towards it. (Be warned, it’s not a free lunch. You either ‘buy out’ the government’s share over time, or the government gets it cut when the property is sold.)
It's worth researching the First Home Guarantee, especially if you aren’t a high-income earner. If you meet the criteria and nab one of the places available (there were only 35,000 during the 2023-2024 financial year), you’ll only need a 5% deposit, with the Federal Government covering the other 15% (of the standard 20% home deposit).
Support for older Australians to buy their own home
- First Home Guarantee (aka First Home Loan Deposit Scheme) The government guarantees part of your deposit.
- First Home Super Saver Scheme You can make voluntary contributions to your super and withdraw it to use as a home deposit.
- Family Home Guarantee This scheme is for single parents with dependents. The government assists by guaranteeing part of your deposit.
- Regional First Home Buyer Support Scheme This is for those intending to buy property in regional Australia. The government helps by guaranteeing part of your deposit.
- Help to Buy scheme The government funds some of the upfront cost of a home in exchange for equity in the property.
- First Home Owner Grant (FHOG) — this is a national scheme, but there are some differences between states. There are also one-off transfer or stamp duty concessions and sometimes waivers. Read more about support to buy a home on state government websites for Australian Capital Territory, Northern Territory, Queensland, New South Wales, South Australia, Tasmania, Victoria and Western Australia.
Super isn’t a magic bullet, but it can be a helping hand
Housing unaffordability is an issue that’s having an increasingly dire impact on Australians of all ages. Unfortunately, there don’t appear to be any quick or easy answers to the problem.
To continue with the example above, even if Gary does end up with $400,000 to spend on housing, that’s not likely to get him far in capital city property markets. At the time of writing, $400,000 will buy one-quarter of a median Sydney house.
That means that – even in a best-case scenario – many of those entering (or re-entering) the property market aged in their fifties and sixties will likely have to make compromises.
Maybe that’s living in smaller lodgings, possibly that’s living on the outer-suburban fringe of a capital city, perhaps it means a sea change or tree change. It might even mean relocating to a nearby country with a lower cost of living.
However, gaining access to the retirement nest egg they’ve spent their lives building up should at least allow many renters to belatedly become homeowners.
Just in the nick of time.
Advice given in this article is general in nature and does not take into account your personal circumstances. It 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 own personal circumstances before making any financial decisions.