Retirement strategies for Australian expats
While we all have our own story about how we became an expat, from that dream FIFO job that launched you into an international executive career, to the humble expat teacher who found their slice of paradise on a beach in Thailand.
Despite our differences in income and career trajectory you will find that most of us have one thing in common. We have stopped paying into our superannuation and haven’t found a suitable replacement. What are the the best Retirement strategies for Australian expats? While it’s not something you may have given much thought to this is one of the biggest financial risks that we can possibly face, as one year offshore turns into 5, then 10 years. All of a sudden, we are 65 and if you haven’t planned properly you may find yourself in huge financial trouble.
Hi, I’m Ryan Cullinan and I am an Australian dual qualified (UK/Aus) Financial planner who lives in Thailand. I hold qualifications with both the UK Chartered Institute for Securities & Investment as well as Australian qualifications with Kaplan Professional. I have been looking after Australian clients for over 3 years and have more than 10 years’ experience in Commerce and Credit management. I look after more than AUD $8,000,000 of assets under management and am a Senior Wealth Manager. I place ethical, client focused advice as my top priority and have been asked to write this article about Retirement strategies for Australian expats.
*NOTE: This article is general in nature and is not meant to be taken as financial advice. Please speak to a qualified Financial Planner before making any major investment decision.
There are a few key considerations for you to make before setting something in place and this article will cover them. I will focus on using an International ‘Regular Savings Plan’, as these are probably some of the most common and widely used vehicles.
Goodbye Superannuation
Love it or hate it, Superannuation is a great system for almost all Aussies, motivating you to save for retirement and offering both employee contributions as well as tax benefits. If it weren’t for superannuation then a lot of Australians wouldn’t be able to enjoy the retirement they currently have. However, if you are not planning on returning home, or are planning a long stint overseas, setting up an international investment has many benefits over super. You are no longer tied into the government restrictions on access age, you can have it in your local currency and you generally have more control over how your money is invested.
Which currency should my investment be in?
This is one of the most key decisions to make, but luckily when we take a step back it’s rather easy to decide.
“Are you going to be returning back to Australia?”
If the answer is ‘yes’ then I would generally recommend and AUD policy, if you’re planning to spend your retirement account in AUD then having it in another currency can expose you to adverse risk. For example, if you had been investing into a British Pound policy for the past 20 years and brexit happened the week before you were set to retire in Australia, you would not be a happy camper.
If you plan to retire in another country, then I generally advise trying to hold a policy in that currency. If the currency is not available (such as Thailand with THB policies) then I would usually recommend USD as that is the global base currency.
Length of Investment
For this point it really depends on if you’re planning on doing something manually yourself where you have to invest into a platform every month or go the route of something like a ‘Regular Savings Plan’ which has a term of a pre-determined amount of years and comes off your Credit/Debit card automatically.
For this you generally want your policy to be maturing at the age you plan on retiring (be honest with yourself about this and speak with a Financial Planner who can come up with a suitable strategy with you). There is no point having a policy mature at 52 years of age when you are planning on working and retiring at 60, as those last 8 years of work are likely to be your most profitable.
Amount to invest.
To get the maths right you want to first be looking at what sized pension pot you are going to need for retirement. I call this the “who is going to die first maths, you or your money?” This really boils down to how much you spend and at what age you retire. There are plenty of articles out there that will cover this topic so I will let you do your own research later.
You can work on a basic formula of:
- A 3% inflation rate
- Salary increases of 2% per year
- A 5% rate of return in retirement (assuming a more conservative portfolio)
Example, you are 40 years old, you have $150,000 of savings, you are currently earning $75,000 a year. You want to have at least 70% of that wage as retirement income when you retire at 67
“You will need to invest at least $1,250 a month to achieve your retirement goal”.
*IMPORTANT*
If you are planning on setting up an offshore Regular Savings Plan then I always advise ‘start small, and work your way up’. While these can be absolutely fantastic financial planning tools, don’t go overcommitting to the policy as these can quickly become a chain around your neck instead of the foundation of your retirement if your situation changes. Keep in mind that doesn’t mean I’m saying put away $50 a month and thinking “she’ll be right” though, as the maths clearly shows “she won’t be right!”.
When should you start saving?
Yesterday! This is the most cliche but accurate answer.
The maths for retirement NEVER lie, you will always need a set amount of money in the bank if you want to enjoy a comfortable retirement.
Think of it like a road trip that you need to take. The destination (retirement) is 500km away, that distance will never change. If you leave yourself 5 hours to make the trip then you will only need to do 100km/h… However, if you procrastinate and only give yourself 3 hours to make the same trip then you will need to drive at a crazy 160km/h. Each year you delay has a huge compounding effect on your retirement, I can’t stress enough how important it is to start saving today.
Tax and returning to Australia.
*Note: I am a financial planner and not a tax agent, wherever you have tax questions I always recommend speaking with a qualified and licensed tax agent.
Generally speaking, if you take out a Regular Savings Plan through a Life Assurance company the ATO will consider these a ‘foreign Foreign Life Policie’ (FLP). They are subject to the ’10 year rule’. This means that if you take one out today as a ‘non resident for tax purposes’ (expat) and then you return to Australia you will be subject to this 10 year rule.
It states that if you take income from the investment within 10 years then you will be subject to income tax on the policy which can be quite significant. It does scale down starting at year 8, however my advice is that you should think carefully about taking out one of these policies if you intend on drawing out of it within 10 years in Australia.
On the plus side, the growth on these policies are generally free of CTG and Income taxation if you are not taking distributions. Making these a very savvy investment if you’ve got the time to wait 10 years before taking money out of the investment.
Final thoughts.
If you’re no longer contributing to your Superannuation scheme back home in Australia then looking at an alternative today is one of the best things you can do for yourself. It will not only allow you to have financial stable future, but might also mean the difference between being able to enjoy that dream tropical retirement, or having to come back home to Australia to see out your days.
*This publication has been carefully prepared, but it has been written in general terms and should be seen as broad guidance only. The publication cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon the information contained therein without obtaining specific professional advice I do not accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information in this publication or for any decision based on it.*