NICK BRUINING: Why it’s not all doom and gloom if you’re still renting in retirement

While being a homeowner is a distinct advantage for those entering retirement, those non-homeowners fortunate to have some money stashed away don’t come off too badly.

Independent financial planner Melanie Davies said renters with an average amount in superannuation needn’t be worse-off.

“They miss out on the potential growth in property values over time but invested wisely they can end up living a pretty comfortable retirement,” Ms Davies said.

“But it’s all about cash flow.”

According to the Association of Superannuation Funds Australia, rental expenses average about an extra $15,000 a year to cover the extra money spent on rent.

While its reasonable to question where a person can rent a property for less than $300 a week, bear in mind that some of the home-owning expenses disappear from the annual budget.

“Rates, building insurance and maintenance are three potential ongoing biggies. And there’s the capital outlays for things like hot water systems and air-conditioning,” Ms Davies said.

Single renters or non-homeowners are allowed an additional $267,000 — or a total of $600,000 — in assets before Centrelink’s asset means test starts to reduce their pension by $3 per fortnight for every $1000 they are over the threshold. For couples, that lifts the minimum threshold to $766,000.

Under the means testing system, a single homeowner with $700,00 in savings paying 5 per cent a year and $30,000 in other assets would receive a total minimum income of about $36,200. That’s based on the investments paying $35,000 a year and a part-pension of about $47 a fortnight, or $1200 for the year.

Our non-homeowning renter, however — with the same amount in investments — generates a total minimum income of $62,800. Why?

Because the increased means test thresholds result in a higher $22,000 a year pension. Plus, as a renter, they’re entitled to rent assistance of about $224 a fortnight. That assumes they’re paying at least $457 a fortnight for rent.

A home-owning couple with $730,000 in assessable assets would be entitled to a minimum income of about $65,500 a year. Again, $35,000 from investments and a part-pension of about $35,500 for the year.

But our couple who are renting collect a sizeable age pension of about $41,600, plus the investment earnings of $35,000 and about $5400 in rent assistance, giving them a minimum income of about $82,000 a year.

In both cases, structure the investments wisely — perhaps using account-based pensions — and no tax is payable.

“You would need to be a bit savvy with the investment portfolio, looking to generate long-term growth as well as income for those expenses,” Ms Davis said.

“It’ll need regular reviewing, but that could be done within any low-cost super fund.”

Nick Bruining is an independent financial adviser and a member of the Certified Independent Financial Advisers Association