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Retirement, Superannuation

Renting retirees need extra $500k in super

Retirees who do not own a home may need to find an additional $500,000 in their super to fund their rent, raising questions over advice given to them about super, according to new research.

Milliman’s “Retirement Expectations and Spending Profiles (ESP) report” found that a retiree renting a one-bedroom unit in Sydney will require more than $500,000 in extra super savings to fund the same lifestyle as a homeowner.

The report, which compared six retiree profiles against a “nationwide” profile and based on the real-world expenditure patterns of over 300,000 retirees, shows a 65-year-old urban renter may have to spend around $15,000 a year more than the nationwide retiree.

Nearly half of their budget will have to be allocated to rent even after Centrelink rent assistance.

While acknowledging the importance of saving for retirement, Milliman argued its analysis showed in some cases older Australians may be better off diverting savings towards home ownership rather than their super.

“It also underlines the importance of super funds delving deeper into their membership to understand their circumstances before offering general advice,” the actuarial firm said.

Milliman also noted renters receive relatively low levels of subsidy through Centrelink rent assistance, while the family home is exempt from the age pension means test.

“The unfortunate result is that the urban renter retiree requires more than $1 million in super to sustain their expenditure to female life expectancy with 95 per cent certainty, assuming an investment in the average balanced super fund investment option,” the report said.

“This is more than $500,000 above the amount required by the nationwide retiree.”

Commenting on the federal government’s First Home Super Saver Scheme measure, Milliman said it aims to allow people to save for their first home inside their super fund, where contributions are concession ally taxed.

However, the scheme will not make a significant difference to home ownership levels as it is capped at $15,000 annual contributions over two years, the report said.

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