Dollars & Sense: Should a retiree buy in an over-55s village or keep renting?
Our financial adviser examines renting in retirement or buying in a land lease village, while a reader argues it is critical to never close a mortgage.
I turned 67 and am now receiving a part age pension as well as income from my superannuation pension. I currently rent but am considering purchasing a home in an over-55s land lease village. My assets are predominantly in super, approximately $700,000. Buying would lower income from my superannuation pension and provide some increase in my age pension. My rent is twice the village lease fees. My total income after a purchase would go from approximately $70,000 to $50,000. Should I buy or keep renting?
Maurice, Central Coast NSW
Firstly, one of the strongest arguments for buying is the security of having a stable roof over your head, bringing with it a sense of stability and peace of mind. Renting comes with uncertainty from rising rents, changing lease terms, and the risk of the property being sold.
These disruptions can be stressful and financially destabilising, especially in retirement. Owning your home removes that uncertainty and provides long-term peace of mind.
Financially, the move could also make sense. Although purchasing the home would require using about half of your $700,000 superannuation balance, it would significantly reduce your assessable assets under Centrelink’s rules resulting in a higher age pension entitlement, helping to offset the reduced income from your superannuation pension. While your total annual income may drop from about $70,000 to $50,000, your housing costs would also decrease, as lease fees are roughly half your current rent.
Assuming you are single and based on assessable assets of $750,000 as a non-homeowner you should be currently receiving about $17,300 per annum in age pension payments. Buying a house reduces your assessable assets but would result in an increase in pension to $24,500 a year. It is vital you understand how much you will need once no longer renting to meet your ongoing living costs. Spending time working on your budget will be well worth doing.
Importantly, the over-55s village will also offer you a supportive community, lower-maintenance living, and more predictable costs. These lifestyle benefits, combined with financial stability and increased pension support, make the purchase a compelling option.
Yes, the decision involves a trade-off – less liquidity and a lower income stream – but it delivers greater housing security, reduced financial stress, and improved pension eligibility. In retirement, these factors often outweigh the benefits of maintaining a higher income.
Should you ensure a mortgage is never actually closed down?
I think it is critical that a mortgage is never actually paid out and closed down. By all means get the outstanding amount to zero, but don’t go to the next step and close it down. You will never get a similar value line of credit ever again, especially if you are retired. Do you agree?
Lloyd, Sydney
You’re right to highlight the value of not closing a mortgage account in retirement, even after the balance reaches zero. Once regular employment income ceases, lenders become far more conservative.
Even though retirees can still apply for credit cards or loans, they must meet strict eligibility criteria and provide extensive documentation – such as superannuation statements, Centrelink payment summaries, and proof of regular income with many surprised to find that their applications are rejected or approved with lower limits and higher interest rates.
If it doesn’t cost a lot each year in fees, keeping open either a low-cost credit card or your mortgage allows you to retain access to funds for emergencies or lifestyle needs without the hassle of applying for new credit. Whether it’s a health emergency, car repair, or unexpected expense, having quick access to funds – without needing approval – can be a major relief in retirement.
Many retirees who closed their mortgage or credit card accounts later regret losing access to low-cost credit. Reopening a similar facility often requires income verification, which can be challenging post-retirement and even more difficult (almost impossible) should the main account or card holder die.
Keeping access to credit in retirement, however, can be a double-edged sword if you don’t have the discipline to manage your finances appropriately. Easy access to credit can lead to poor financial discipline, especially when your income is fixed.
Additional debt repayments caused by poor spending decisions can put enormous strain on a budget, eroding retirement savings. Sadly, older Australians are also often targeted for scams. Open credit lines can be exploited if personal details are compromised, so you need to be careful.
Owning your home and managing credit sensibly offers the best of both worlds: security, flexibility, and financial resilience. If you’re financially disciplined and understand the risks and costs, keeping your mortgage account open with a small balance can be a useful source of liquidity.
Jason Featherby is co-founder and head of financial advice at Leeuwin Wealth.
The responses provided are general in nature and, while they are prompted by the questions asked, they have been prepared without taking into consideration all relevant circumstances. Before relying on any of the information, please ensure that you consider the appropriateness of the information provided with regard to your objectives, financial situation and needs, and seek independent professional advice.
Welcome to our Dollars & Sense column. While in no way is it formal financial advice, it is a way to stress test your decision-making, to find out potential financial implications before you make your choice, and to discover more about structuring your affairs so that your money works harder for you. Submit your questions to dollarsandsense@theaustralian.com.au.