Renting can actually offer greater flexibility to retirees seeking the right kind of environment for their new lifestyle. And getting that location right can have tremendous benefits for health and longevity.
If you value security, control, settling in, access to cheap debt, or the structural advantages of buying, then maybe owning a house in retirement is the best move for you.
Renting can often reduce expenses and simplify a retirement lifestyle significantly, and investing the money from selling the home can augment a cash flow that would otherwise be too low to meet their expenses.
However, once you move out, and rent out your home, it is no longer excluded from the assets test and furthermore the income you receive as rent will also be assessed under the income test. So, you will be hit with a double whammy and may lose all or part of your pension.
ASFA chief executive Martin Fahy says Sydney retirees planning to live a comfortable retirement in a rented home will need to save between $1.04 million and $1.16 million in superannuation. That's about double the required retirement savings of between $545,000 for homeowner singles and $640,000 for couples.
Yes you do have to pay tax on the rental income from the property.
Maximum housing benefit is 100% of the eligible rent that you pay after services such as heating, lighting, water rates and non dependant charges are taken out.
For example, if you are a single homeowner you can get a full pension with an asset limit of $270,500. As a couple with a home and combined assets your limit is reached at $405,000 to receive a full pension.
Here's why retirees are increasingly interested in becoming renters. Less home maintenance. Maintaining a home is a lot of work, and it becomes more taxing as you age. Even something as simple as changing a light bulb over the stairs can be difficult or even dangerous for an older person.
In theory, buying a house after retirement gets you more for your money than renting. However, homeownership also entails substantial financial risks. Issues such as fluctuations in market value, unexpected maintenance expenses, and insurance deductibles can increase costs over and above those of renting.
“But retirees should look at renting as an investment into a lifestyle. Renting can be cheaper than owning a home, and retirees can free up home equity to improve their life.”
Paying off your mortgage early frees up that future money for other uses. While it's true you may lose the tax deduction on mortgage interest, you'll have to reckon with a decreasing deduction anyway as more of each monthly payment applies to the principal, should you decide to keep your mortgage.
Thanks to the Equal Credit Opportunity Act, there is no age limit to taking out a mortgage. As long as you can meet the financial requirements, you're allowed to take out a loan at any time. To take out a mortgage over 60 you will need to be able to prove your ability to repay the loan.
The 25% rule of thumb while retired
My suggestion is to limit your mortgage, or rent, payment to less than 25% of your total retirement income. 25% still is low enough, that for many of us, after a mortgage and income tax payments, less than 40% of your income is going away to taxes and mortgage payments.
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Eight million pensioner households will get a £300 Cost of Living payment in late 2023. The £300 payment will be made on top of Winter Fuel payments, which in late 2022 were made to nearly every pensioner who turned 66 born before September 26, 2022.
You can get Rent Assistance if you pay rent and you're getting: Age Pension, Carer Payment or Disability Support Pension. ABSTUDY Living Allowance, Austudy or Youth Allowance. Special Benefit.
If you are pension age
Your benefit will not be affected by the bedroom tax if either: you do not have a partner who lives with you. your partner lives with you and is also pension age.
When it comes to retiring solely as a result of rental income, the math is quite simple. You will need just two formulas: The monthly amount needed for retirement ÷ The cash flow per rental property = The number of rental properties you will need. Cash flow = Income – Expenses.
The answer is no—rental income does not affect pension every time, not when you are in care.
Roth Withdrawals
The easiest way to avoid taxes on your retirement money is to use a Roth account. Both IRA and 401(k) plans can be structured as Roth accounts, which don't offer a tax deduction on contributions but allow tax-free withdrawals after age 59 ½.
ASFA estimates people who want a comfortable retirement need $640,000 for a couple, and $545,000 for a single person when they leave work, assuming they also receive a partial age pension from the federal government.
The amount needed for retirement will be different for everyone, but for most people $2 million will be more than adequate.
The Association of Super Funds of Australia (ASFA) claims it's $640,000 for couples and $545,000 for singles. The reality is most Australians retire with far less in super. Indeed, the average super balance for Australians aged 60-64 is just over $300,000. That may be enough.