Real estate tax and pension wins: why no owner should retire poor

Real estate is harder than ever to afford for first home buyers, but the struggle pays off when retirement arrives.

Home ownership produces happier retirees, for several reasons. Picture: iStock

Home ownership seems to be slipping further out of reach for Australia’s youngest generations, and that’s bad news for our future oldest generations.

As high entry costs, high interest rates and high demand for under-supplied and overpriced homes prompts more people in their twenties and thirties to give up on housing and head on holidays instead, a key plank of people’s retirements is looking wobbly.

Owning a home is important at any time of life for its security and financial benefits, but for retirees it becomes crucial for anyone wanting to avoid struggle street.

Today’s older parents – Generation X, Baby Boomers and their predecessors – should be doing everything possible to help younger Australians secure a roof over their head. While this may be impossible when the parents themselves are renters, others have the financial means to help but choose not to – some saying their adult children need to stand up in the “real world”.

But unfortunately for their kids, today’s real world in real estate is much harsher than mum and dad experienced, because home values have surged much faster than household incomes.

And as our population continues to grow faster than homes are being built, it’s a big worry for future first-home buyers.

Property ownership in retirement delivers so many benefits, including these.

NO RENT

Compared with owning a home, rent money really is dead money. It’s why property investment is so lucrative – a tenant helps an investor repay the mortgage. Most retirement calculators automatically assume home ownership, because they know the numbers just don’t stack up for retirees who have to find an extra $500 or $600 a week to put a roof over their head.

PENSION BENEFITS

Centrelink assets testing affects almost everything a retiree owns – car, caravan, household goods, cash in the bank and superannuation – but their house is exempt.

This is great for senior homeowners compared with renters, even though renters get a higher threshold before pension payments are reduced – $566,000 of assets for a single non-homeowner compared with $314,000 of a single homeowner. That said, you won’t find any properties priced at that $252,000 difference these days.

TAX BENEFITS

Your home is also free from capital gains tax, a nasty impost that can easily be tens of thousands of dollars when a large asset is sold. It gives home ownership a huge headstart over other assets such as shares, investment funds and rental properties, even in retirement.

Seniors who rent will find balancing bills much tougher. Picture: iStock

AN ASSET TO ACCESS

Seniors can dip into the equity of their home to free up cash to fund their lifestyle.

Reverse mortgage products enable this but interest can be near 9 per cent. However, the federal government has a similar scheme charging just 3.95 per cent interest. Its Home Equity Access Scheme lets people borrow up to 150 per cent of the full age pension rate.

It’s difficult to be poor if you own property in retirement, although some people still manage to do it. The bank of mum and dad, grandparents and anyone else able to assist should try to help give their loved ones a foot in the property ownership door.

Originally published as Real estate tax and pension wins: why no owner should retire poor