How much do I need to save for retirement if I’m renting? Five tips on what you need to do now to help later

It’s not easy preparing for retirement as home prices, rents and the general cost of living rise faster than wages and saving deposits.

The average house price in Australia’s capital cities increased by about 173 per cent over the past two decades, according to CoreLogic.

About 84 per cent of Baby Boomers, aged 65 and over, own property compared to 72.5 per cent of Generation X, aged between 45 and 64, 68.3 per cent of Millennials, aged between 30 and 44, and 40 per cent of Generation Z, aged between 18 and 29.

This means is an increasing number of Australians are facing renting in retirement. The average median weekly rent in Australia jumped 7.8 per cent over the past 12 months to $634 a week, according to CoreLogic, or $32,968 a year.

The Association of Superannuation Funds of Australia retirement standard for the 2024 March quarter for a comfortable lifestyle was $72,663 a year for a couple and $51,630.00 a year for a single person.

The Nightly sat down with AFSA chief executive Mary Delahunty to ask how to prepare for retirement amid uncertain economic conditions.

Q: When there’s so much economic uncertainty, how can you plan for retirement?

A: It’s so tough, it’s hard enough to plan for next week’s grocery bills without trying to plan for the future. But I think the good news about retirement planning is it is often a long-term scenario. You can think about firstly getting organised for the date you’d either like to stop work or reduce your working hours.

Sometimes when we’re talking about super people treat it a bit like an eclipse — they just don’t want to look at their current budget and balance. But it’s something you need to look at, number one is to take note of what you currently have and understand what you might need as a balance to retire.

That’s different for everyone, there’s a lot of urban myths about the $1 million mark, but it depends on your lifestyle.

Q: If an increasing number of us won’t own property and are facing renting in retirement, how do we plan when rents are increasing by nearly 10 per cent a year?

A: It’s very difficult and it depends on what stage of life you are at. But if you imagine renting in retirement, and that retirement is some time off, you need to build that into your budget and think about what that means for your budget for the other things you want to do in life. That can be about taking holidays or certain things you’d like to own or continue to do.

So you sort of face your budget in that way and understand the difference between your balance and what can be done in that budget.

With the rising cost of housing, depending on how far away you are from retirement, there are a number of initiatives to add to the housing supply that will helpfully help over the long term. But it depends on how close you are to retirement obviously.

Q: For members of Generation X, aged between 45 and 64, what should I be doing now to prepare for retirement?

A: I’m Gen X and I can tell you one of the best things I have done is to treat this not as an eclipse and to look at my retirement balance. I take a lot of pride in what we’ve managed to build in there, especially for women who have broken work patterns quite often to look after other people.

Take pride in it and understand the government aged pension exists for a reason and it exists to allow you a form of dignity in retirement. We don’t want to be completely frightened by that end result. Can we possibly afford to salary sacrifice more into superannuation? That’s one of the biggest decisions you can make for yourself. Can you spend some time getting some advice? This is pretty frightening for people my age. We’ve got other things going on. We’ve got mortgages, we’ve got rental expenses. We think financial advice isn’t for us but it is for everyone. And it can make a huge difference at this time of our lives.

Q: What’s your advice to people who are worried about retiring?

A: If I was retiring tomorrow, the biggest concern I might have is will my money last given the rising cost of living? One of the ways you can help think about this is by accessing advice. What an adviser might help you to map out, is if everything goes to plan you’ve got a long time in retirement too. Your money actually stays invested in retirement so it’s exposed to the ups and downs of whatever market you want it to be exposed to. So let’s say it stays invested in equities and at the moment international equities are delivering some really good returns for super funds. So even though you’re thinking, I’ve stopped contributing to retirement or contributing into my fund, that fund hasn’t stopped working. It’s helpful to think about your fund like that as well, it’s going to be earning returns over the course of your retirement as well.

Q: Is there any general advice you would give people around retirement planning?

A: Seek the right help. There’s a lot of information out there we’ve certainly seen a lot of, shall we say “financial advice”, on TikTok and on social media platforms. That’s not where you want to be getting your help from. But your funds are there to work for you. Ring your super fund and see what they can offer you in terms of help.