The future is not so bright for people who are slated to enter retirement by the year 2056.

The future is not so bright for people who are slated to enter retirement by the year 2056, as fewer retirees are expected to own their own homes by then.

In a think piece in Architecture & Design, Grattan Institute's Brendan Coates and Tony Chen said the retirement income system is at risk of failing for those who rent.

"They are more than twice as likely as homeowners to suffer financial stress, as indicated by things such as skipping meals, or failing to pay bills," Coates and Chen said.

Aside from lower incomes, they believe that renters face difficulty climbing the deposit hurdle. This results in decreasing rates of homeownership among the presently young and poor, they said.

A Grattan Institute study published late last year revealed that the share of 25- to 34-year-old Australians who own their home has shrunk from 60% in 1981 to 45% in 2016. Homeownership rates for Aussies in the 35-44 age bracket declined from 75% to 62%.

Coates and Chen believe that homeownership now depends on income much more in the past. In fact, amongst those in the age bracket 25-34, the poorest 20% witnessed homeownership rates fall from 63% to 23%.

Using Grattan Institute's model, the two project that homeownership rates amongst those 65 and older would fall from 76% to 74% by 2026; to 70% by 2036; 64% by 2046; and 57% by 2056.

"And while we don’t project homeownership rates for different income groups due to data limitations, it is more than likely that less than half of low-income retirees will own their homes in future, down from more than 70% today," they said.

Given this, it is expected that renting will become more common amongst retirees, exposing them to financial stress. Coates and Chen said there is a need to augment the rent assistance policies in Australia to help low-income renters afford a home.

Grattan Institute's Money in Retirement report recommended boosting Commonwealth Rent Assistance by 40%, restoring the buying power it had 15 years ago.

They said it is also crucial for policymakers to review retirement incomes. While most workers today can expect a retirement income of at least 89% of their pre-retirement income, retirees who rent will not have enough to meet living expenses.

The situation of retirees who own a home would not be as picture-perfect as some would assume. Coates and Chen said there is an increasing share of homeowners who would still be paying off mortgages when they retire. According to the study, of the Aussies under the 55-64 age bracket, only 42% own their home outright, down from 72%.

"And rising housing costs will in time force retirees to draw down on more of the value of their home to fund their retirement," they said.

While the two said that the recent expansion of the Pension Loans Scheme was a great move by the government to help retirees borrow against the value of their home, they said more needs to be done to assist them in the future.

"Retirement is going to change in the years ahead. Most retirees will be far from poor, many of them better able to support themselves than ever before. But an increasing number will not. They are the ones who will need our help," they said.