Rent or buy: What’s best for your super?

Home ownership – is it still the Great Australian Dream? According to a recent survey, it is, but the option of renting for life is becoming increasingly attractive.

Real Estate agents, LJ Hooker, conducted a survey of Australians and found that 74% of respondents aspired to own their own home.

Meanwhile, in a survey of renters conducted by Budget Direct, almost 20% of respondents planned to rent forever.

There’s a case for both options, but determining which is best for you depends on factors that include your age, income, job security, lifestyle goals, etc..

Unfortunately, Australia’s retirement structure – which includes superannuation and the age pension – tends to favour home owners.

And while renting or buying doesn’t directly impact your superannuation balance, it can greatly affect how much you can contribute, how your super grows and how far it will go once you’ve finished work. For this reason, it’s important you’re across the pros and cons.

Home owners generally:

• have greater housing security and less financial stress,
• have flexibility if wishing to downsize or move into a retirement facility,
• are exempt from the age pension income/assets tests however, once super moves into the pension phase, it is counted under the income test, along with any other savings and investments.

Besides purchase costs, home owners are subject to council rates, insurance, maintenance, etc., and it may not always be possible to afford a property in a preferred location.

Many Australians, particularly those who travel for work, delay buying a home. In these cases, a later-life mortgage can create stress and financial difficulty due to the urgency to pay it off before retirement.

Renters generally:

• have flexibility around location and type of home,
• can move house more easily and less expensively,
• have no maintenance, council rates or building insurance,
• qualify for government rental assistance after retirement.

Renting, particularly in retirement, can create financial insecurity due to rent increases and limited housing availability.

Research conducted by advocacy group Super Consumers Australia indicates that a typical single retiree owning their home needs around $322,000. A retired renter would need around $655,000, factoring in rental costs. 

In theory, renters may invest the money that they save on deposits, stamp duty, maintenance, council rates, etc., though rising rents and living expenses can eat into those savings. Buyers can experience limited savings capacity in the short term, but an improved capacity over the long term.

Regardless of which way you’re leaning, creating a savings plan is crucial in helping to understand your financial position and decide whether renting or buying is best for you.

While it’s vital to seek professional advice as you approach retirement, the earlier you work with a financial adviser and develop a financial strategy, the better.

In the rent versus buy debate, there’s no ‘best’ solution or one-size-fits-all. There are arguments for and against both options, but ultimately the financial strategy that supports your retirement confidence, lifestyle and wellbeing is the one that will work for you.

The information provided in this article is general in nature only and does not constitute personal financial advice.