Why Your Investment Property Might Be Working Against You in Retirement
By Stan Moffat Senior Financial Planner
Let me say upfront: I'm not anti-property. Property has built genuine wealth for a lot of Australians, and I've watched plenty of our clients do well from it over the years.
But here's the thing I keep coming back to in conversations with people who are five or ten years out from retirement, or already there: the asset that helped you build wealth isn't always the asset that delivers the best income once you stop working.
And for residential rental property specifically, there's a widening gap between what it's worth on paper and what it puts in your pocket each month.
A great accumulation asset. A complicated retirement asset.
During the wealth-building years, investment property makes a lot of sense. You're leveraging borrowed money, claiming tax deductions through negative gearing, accessing depreciation benefits, and letting capital growth do a lot of the heavy lifting over time.
The returns from property come from two sources: income (rent) and capital growth. Historically, Australian residential property has averaged strong long-run capital growth, which is the main reason it's featured so heavily in Australian wealth strategies.
But here's the part that often gets glossed over: the income return (the rent itself) is typically a low yield relative to the value of the asset. Gross rental yields across Australian capital cities have generally sat in the 3–4% range. And that's before you subtract the costs.
According to estimates from the Reserve Bank of Australia, basic holding costs for residential property average around 2.6% per year and that's before financing costs. When you strip back maintenance, rates, property management fees, insurance, and periods of vacancy, what looked like a 3–4% gross yield can quickly become a near-zero net return, or even negative. Research from Morgans Financial notes that this situation means "a large portion of rental income is frequently absorbed by ongoing costs rather than generating meaningful surplus income."
That's fine, even advantageous – when you're still working and can use those losses to offset other income. But in retirement, the numbers flip.
The retirement income problem
When you retire, your focus shifts. You're no longer trying to grow a balance; you need income. Reliable, accessible, flexible income that covers your lifestyle without constant stress.
A rental property delivers a fixed net rental figure each month. If that number is enough to live on, great. But if you need more, whether that's to cover an unexpected expense, take the trip you've been putting off, or simply adjust your lifestyle, your options are limited.
You can't draw a little extra from your investment property the way you can from a super fund or a share portfolio. The only lever you have is to sell. And selling a property is a slow, expensive process (stamp duty, agent fees, capital gains tax) that you can't undo.
That liquidity gap is the core problem
In the retirement phase, assets that can flex to meet your income needs and that let you access capital without a major transaction are simply more suitable for most people.
What the alternatives actually look like
There are several asset types that address the limitations of direct property in retirement:
Superannuation in pension phase: From age 60, income drawn from a super fund in retirement phase is tax-free. Investment earnings on those assets are also tax-free. That's a significant structural advantage over rental income, which continues to be taxed at your marginal rate regardless of your age. The transfer balance cap (currently $2 million for the 2025–26 financial year) means most retirees can hold substantial assets within this tax-free environment.
Australian shares and ETFs: The ASX 200 typically delivers a dividend yield of around 4%, and that figure improves further when you factor in franking credits, particularly valuable in a super environment where you can receive credits as a cash refund. Unlike property, shares are liquid: you can sell a parcel overnight if you need access to capital, without agent fees, stamp duty, or a months-long settlement process.
Managed funds and diversified income strategies: These allow access to a range of income-producing assets, including domestic and international equities, bonds, listed property (REITs), without the concentration risk of a single asset.
The policy headwinds worth watching
There's another dimension to this conversation that's impossible to ignore in 2026: the tax settings around investment property are under more scrutiny than they've been in a long time.
Ahead of the May Budget, Treasury is understood to be actively modelling changes to both negative gearing and the capital gains tax discount. The 50% CGT discount, introduced by the Howard Government in 1999, has been a cornerstone of property investment strategy for over two decades.
Labor backbenchers are pushing for changes before the May Budget, with some proposals suggesting restricting negative gearing to new builds only or limiting it to investors with one or two properties.
The detail of what actually lands in the Budget is, as yet, unclear. But the direction seems consistent: the generous tax treatment that made investment property so attractive during the accumulation phase could look quite different going forward.
For people currently holding investment properties, or considering building a portfolio, this adds genuine uncertainty to a calculation that already had challenges in the retirement income phase.
I'm not suggesting anyone panic. But it's a conversation worth having now, before the rules change, rather than after.
The question worth asking
None of this means you should sell your investment property tomorrow. Context matters enormously. The right answer for a 55-year-old with two properties, strong equity, and 10 years until retirement looks completely different to someone who's already drawing down on super and wondering why the rent isn't stretching far enough.
What I do think is worth questioning is the default assumption that property is always the best vehicle, or that you need to keep holding it simply because it's worked so far.
Sometimes the most valuable shift isn't in the market. It's in recognising when the strategy that got you here isn't the same one that'll serve you for the next 20 years.
If you're thinking through this, whether you're in the thick of accumulation, approaching retirement, or already there, I'm happy to have that conversation.
Stan Moffatt
Senior Financial Planner
Growing up with a single mum when money was tight shaped my outlook on finances and motivated me to help others build more secure futures.
I originally studied commerce and accounting, but after a few years working in the field I realised financial planning was a better fit – combining strategy, problem-solving, and meaningful work with people.
What I enjoy most is helping clients feel confident navigating major life decisions, particularly around retirement and major life transitions.
Stan Moffat is a Director and Financial Planner at Pathwise Financial Planning in Toowoomba. This article is general in nature and does not constitute personal financial advice. Please speak with a qualified adviser before making any changes to your investment or retirement strategy.
General Advice Warning: The information contained in this article is general in nature and does not take into account your personal situation. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice from a financial adviser.