How much super do I need if I don’t own a home?

Most published retirement savings goals assume you retire as a homeowner – but what if you don’t? The Age Pension assets test is adjusted for renters and rent assistance is available, but these factors do not prevent retired renters from experiencing much higher rates of financial stress than their homeowning counterparts.

With rates of home ownership declining, more Australians will face retirement as renters. If you anticipate you could be one of them, your retirement income goals, and the savings you need to finance that income, will be significantly different from retirees who own their home.

How renting in retirement affects financial security

The most recent insights into the needs of retired renters and how they are faring were provided by the final report of the Retirement Income Review. This review was set up to improve understanding of the operation of Australia’s retirement income system and the outcomes it is delivering for Australians. While the final report was released in November 2020, the findings are still relevant.

It found that almost one-quarter of retirees renting private homes, and more than one-third renting public housing, are in financial stress. In contrast, fewer than 10% of retired homeowners are in this position. The group with the highest rate of financial stress – more than 50% of individuals – was renters who retired early (between age 55 and 64).

What are the signs of financial stress?

Financial stress is defined as having four or more ‘indicators’ – such as being unable to heat your home, going without meals, not taking holidays or nights out, being unable to pay bills on time, and pawning or selling possessions due to being short of money.

The Retirement Income Review also revealed that just under 50% of renters aged 65–74 and more than 35% of those aged 75+ spent more than 30% of their income on rent. This is the threshold that indicates rental stress.

The evidence clearly indicates that renting can make life in retirement very difficult if you haven’t accumulated significant savings.

What assistance is available?

In an attempt to level the playing field for renters, the Age Pension assets test is adjusted for non-homeowners – allowing a higher value of assets before the pension is reduced and before it cuts out entirely. The current gap between homeowner and non-homeowner thresholds is $252,000.

This still gives homeowners a significant advantage because the value of their home is not an assessable asset. The home is usually worth far more than the $252,000 reduction in assets test limits.

After recent increases, rent assistance is payable to Age Pension recipients at maximum rates of $211.20 per fortnight for a single person and $199 per fortnight for a couple (combined).

The 2023 and 2024 Federal Budgets increased rent assistance by 15% and 10%, respectively (in addition to the usual indexation). These increases are intended to reduce housing affordability pressures for all recipients of income support, not just retirees. While the increases were welcome, rent assistance rates remain far below market rents.

The Retirement Income Review found that for two-thirds of recipients, rent assistance covered less than a third of fortnightly rent, and that even a 40% increase to the payment would have minimal impact on rates of financial stress.

Instead, the report suggested that a broader approach is needed to assist those who rent in retirement. This might include re-examining the operation of Age Pension means testing that currently significantly advantages homeowners.

Retirement income goals

You’ve probably seen numbers tossed around that predict the income you’ll need in retirement. These almost universally assume you will own a home.

There are two main methods for estimating required retirement income.

1. Calculating the dollar amount of income based on what current retirees spend or on what a reasonable range of items cost
2. Putting forward a percentage ‘replacement rate’ of a person’s pre-retirement income.

Both methods need adjustment to be applied to renters.

Popular dollar amount estimates of retirement needs include the retirement standard from the Association of Superannuation Funds of Australia (ASFA) and retirement savings targets from Super Consumers Australia (SCA). The SCA has based its advice on data from the ABS that reflects what retirees currently spend, splitting the results into low, medium and high spending thresholds, while ASFA calculates a ‘modest’ and ‘comfortable’ standard based on the real cost of a comprehensive list of budgeted items.

Keep in mind that the lower income levels are unlikely to be particularly comfortable. They reflect a level of income only slightly higher than the full rate of Age Pension.

The most recently published annual retirement income targets for current retirees aged around 65 are shown below.

These income targets assume you own your own home without a mortgage and receive a full or part Age Pension when eligible. 

Calculating your retirement income needs