Analysis: Does it really pay to move to a cheaper location upon retirement?

The decisions leading to retirement are swayed depending upon your personal situation and preference.

For some, the mere thought of moving kilometres away from grandchildren would be too hard emotionally. For others, reaping the benefits of equity growth coupled with a move to a more affordable location could leave spare cash to begin tackling your bucket list.

In reality, we are a nation living longer than ever before, which requires more money to fund retirement. In 1975, an estimated 9 per cent of the NSW population was aged 65 and over, by 2016 this reached an estimated 15.7 per cent, according to ABS Australian Demographic Statistics (catalogue number 3101.0).

The Intergenerational Report Australia in 2055 predicts that by the year 2055, 40,000 Australians will be centenarians, compared an estimated to 3526 in 2016.

Employment insights prove a higher proportion of the population aged 65 and above remain in the workforce. This could be a matter or choice but presumably is because of a lack of funds for retirement. It is a trend that continues to edge higher.

In July 1978, the work participation rate of 65-year-olds and above was 9.4 per cent (married) and 4.1 per cent (unmarried), in July 2017 the figure rose to 16.5 per cent (married) and 8.2 per cent (unmarried), according to ABS Labour Force, Australia.

As our life expectancy improves it is likely a higher proportion of the population will continue to work into the traditional retirement years. Ultimately, we will all need more cash to fund a basic retirement.

The introduction of mandatory Super was expected to fund a mass of early retirees. Baby Boomers have not had the pleasure of receiving this payment throughout their entire working life.

The mandatory contribution introduced in 1992 has created a gap in the superannuation savings of Baby Boomers.

A comfortable retirement will require $59,971 a year for a couple and $43,665 for a single, according to  the Australian Securities and Investments Commission ASFA Retirement Standard for the March 2017 quarter.

Compared to the aged pension ($34,819 for a couple and $23,096 for a single), it highlights the requirement for additional savings.

For Sydneysiders, the major sway is the ability to unlock the substantial equity gain.

Moving to a more affordable location could assist in a more comfortable retirement, or allow you to financially assist your adult children – most probably to gain access to the housing market.

• Related: Retirees given $300,000 incentive to downsize
• Related: Downsizing cost traps awaiting Australian retirees
• Related: Australians choosing renovation over retirement villages

As of July 2018, Australians aged 65 years and over can make a non-concessional (post-tax) contribution up to $300,000 (per individual) from the sale of their home into superannuation in a policy designed to encourage downsizing. It is important to consider the financial implications: the aged pension is income tested and any proceeds from the sale could alter government entitlements.

Ultimately, both financial and emotional aspects are pivotal in the decision-making process. If a move is on the cards, factor the travel distance to nearest and dearest, and research the community in which you are looking to reside.

Dr Nicola Powell is a data scientist at Domain Group. Tweet your questions to @DocNicolaPowell

References

ABS Australian Demographic Statistics, Catalogue number 3101.0.

Australian Government, The Treasury, Intergenerational Report Australia in 2055.

ABS Labour Force, Australia, Catalogue number 6291.

ASIC, Australian Securities and Investments Commission, Source ASFA Retirement Standard, March quarter 2017.

Australian Government, Department of Human Services, Age Pension.