Is it better to rent or own in retirement?
- Collins Hume
- Mar 20
- 6 min read
The perfect retirement looks different for everyone.
However, one thing we all have in common: we all need a place to live!
Housing is a key part of planning your retirement, but how do you work out the best financial decision for you? It can feel intimidating with inflation, soaring mortgage rates, and skyrocketing house prices.
More and more retirees are still paying off their mortgage (up to 54% of 55-64 year olds, and 13% for those older than 65), thanks in part to rising house costs. These retirees are often paying off their mortgages with superannuation, which can limit spending for the rest of their retirement. For many, the goal of retiring with a home paid off is becoming more and more unachievable.
But is renting any better? Let’s look at the options and how to rise above the troubling commentary that you might be reading.
The Pros & Cons of Owning vs Renting
There are many questions to consider as housing becomes a bigger issue for many people. Like “is it better to buy a house later in life to have housing security but be dealing with a mortgage?” What about, “can I rent and face potential instability but without the debt burden?”
If you already own a home, do you keep it or sell it? Each option has upsides and downsides to it, based on your situation. In this issue, we’re looking at the pros and cons of both renting and owning, to help you decide which option is better for your own retirement plan.
First, what’s so great about owning a house?
For many Aussies, owning a home is a huge achievement, a sign that you've made it! And let's be honest, there's a lot to love about being the king or queen of your castle. You get to call the shots, renovate as you please, and create a space that truly reflects you. Need a bathroom makeover or a ramp instead of stairs? No problem, it's your house!
And in retirement? There are some perks:
Age pension friendly: Good news, owning your home doesn't affect your eligibility for the Age Pension. It's considered an exempt asset, even if it's worth a fortune.
Stability and peace of mind: Say goodbye to rental worries. Owning your home gives you a sense of security and stability, knowing you're not at the mercy of landlords or rising rents.
Leave a legacy: Want to pass something special on to your loved ones? Your home can be a valuable inheritance for your children or grandchildren.
Lower housing costs: This is a big one, particularly when your income is limited. However, this only applies if you are mortgage-free (or very close to it)!
Overall, owning your retirement home gives you control, stability, and won’t cost you as much throughout retirement.
Okay, so what about the downsides of owning a home?
Ongoing expenses: Upkeep of the home, renovations, or conversions for mobility purposes can add up, as well as ongoing council rates or body corporate fees.
Your money's tied up: Having a lot of your wealth locked in your home can make it hard to access cash when you need it.
The upfront costs: Buying a home is a big financial commitment. If you don’t yet own a home, buying one later in life can create stress (in particular, keeping up with mortgage repayments when you want to start winding down).
So, while owning a home has its perks, there can be both pros and cons, depending on your financial situation.
Does Renting in Retirement Work
First, what are some of the positives about renting?
Renting can be a legitimate financial choice later in life. Usually this is when people have built up a valuable pool of assets and investments - just not in property. Shares are the most common alternative investment, and some people prefer to live off the return they receive from their portfolio rather than spending their capital on an expensive home.
Less home maintenance: Depending on your rental, you’ll probably be able to forget about mowing lawns and fixing leaky faucets, as your landlord takes care of all the upkeep. That can be a huge relief, especially as you get older and home maintenance becomes more challenging.
Debt-free living: Renting can be a great way to avoid taking on a big mortgage or tying up your money in property. Without a big expenditure of capital, people might choose to put that money into other investments.
Flexibility: Want to try a new neighbourhood or be closer to family? Renting gives you the flexibility to move whenever you like.
Renting does have significant downsides too:
No ownership: You're not building any equity, and those rent payments don't contribute to owning anything in the long run.
Limited control: Want to paint the walls purple or put in a new kitchen? You'll need your landlord's permission, and they might not always say yes.
Rental uncertainty: Rent prices can go up, and your lease might not always be renewed. This can make it hard to feel truly settled and secure.
Constant payments: While you don’t have debt, you do have to keep paying rent, week in, week out. This can put a strain on your finances and your mental health.
Mental Health and Life Expectancy: According to research, renting can have serious impacts on your long-term health and stress, which can reduce your quality of life.
Thinking about renting? Ask yourself these questions:
What are your financial goals? Does renting fit with your overall retirement plan?
What kind of lifestyle do you want? Do you value flexibility or stability?
What's your budget? Can you comfortably afford the rent, especially with potential increases?
If you still have some time before retirement, and you have other assets or money in cash, consider seeking financial advice about whether you should invest in property now.
Renting can be a great option for some retirees, particularly if it’s a choice that has weighed the pros and cons carefully. While not all retirees will have the choice between owning and renting, there is always help available to navigate your retirement plan - whatever your situation.
Already Own Your Home? You’ve Got Options!
Things look a bit different if you're already a homeowner. Here's the deal:
Still Paying Off the Mortgage? No worries - your goal should be to pay off your mortgage as soon as possible (while preserving your long-term retirement fund as much as possible). Some people choose to work a few years longer, or transition to retirement. We know a couple who are empty nesters and have been renting out spare rooms to homestay students. And if you're keen to ditch that mortgage debt sooner, we can help you explore some strategies to pay it off before retirement.
Mortgage-Free? That’s great. With no mortgage hanging over your head, your housing costs are likely to be much lower – usually just maintenance and council rates. That frees up a lot of breathing room in your budget. If needed, you could consider utilising the equity in your home to fund your retirement through downsizing, or a home equity release.
Purchasing a Home in your 40s or 50s
When considering purchasing a home for retirement, particularly if you're in your 40s or 50s, several key factors need careful consideration. Here's a breakdown:
Think long-term:
If you're buying in your 40s or 50s, that mortgage could be with you for a while! Make sure you can handle those repayments for the long haul.
It's also worth thinking about how long you'll live in the house. If it's less than 10 years, you might not get the full benefits of owning.
Got a second property or some investments up your sleeve? That could make managing mortgage payments in retirement a whole lot easier.
You may need to ask yourself, can you really afford it?
Let's be real, mortgages (and rent!) eat into your savings. So, factor in ALL the costs – think bills, repairs, council rates - into your retirement planning.
The Age Pension probably won't cover your mortgage repayments, so it’s important to understand where your retirement income will come from.
Crunch those numbers and figure out if buying or renting makes more sense for your retirement budget.
What's the plan? Dream home or future nest egg?
What do you want from this house? Is it your forever home, an investment for the future, or something to pass on to the kids?
Have you thought about what happens when you eventually move on? Will you sell up or is it part of your legacy plan?
Knowing your goals will help you pick the perfect place and avoid any surprises down the road.
For more clarity on how advice could help you, please feel free to get in touch with Essential Wealth and Retirement:
P. 02 5562 6260 (Ballina)
P. 07 5230 4198 (Gold Coast)
Ballina Office Address:
97 Tamar Street, Ballina, NSW 2478
Gold Coast Office Address:
80-82 Upton St, Bundall, QLD 4217
BallinaGCFP Pty Ltd ABN 12 670 111 583 trading as Essential Wealth & Retirement is a Corporate Authorised Representative no. 1305335 of GPS Wealth Ltd AFSL 254 544.
A word of caution for - the included material in this newsletter has been provided as General Advice only. We have not considered your financial circumstances, needs or objectives and you should seek the assistance of your Adviser before you make any decision regarding this communication. We have taken care to prepare this material, but any decisions or actions you take as a result of you reading this communication are entirely your own.
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