Retiring in Oz

[Eto]

Hi Bob,

"If Australians get at least A$27 000 a year for a couple" how close is this to the actual pension payment per couple?

Cheers

Et

[vaughanroe]

Which ever way you look at it I would rather be a poor person in Aus than a rich person in SA.

Some of the opinions here though are certainly very confident and in theory seem well thought out but in practice I am doubtfull of any realistic possibilities.

[Jacques Voogt]

I think it is a matter of discipline.

Say you are 20 years old and expect to retire at 60 that is 40 years to save asuming your saved capital will grow equally with inflation through investment.

Lets say you are a worst case condition and live to 100. That is another 40 years from retirement.

Tax already take a third of your income leaving you with only 2 thirds. So while you are saving, you should use a third to live on and invest or save a third.

It requires discipline to do this and not lift your lifestyle.

However, most people would expect to reach say 80 years of age. Now we have a 40/20 ratio.

Therefore, after paying a third of your income in tax, you can use 44% of your total income to live off and save or invest 22% so that when you turn 80 your money and breath will run out at exactly the same time.

Most people would actually work untill 65, giving a 45/15 ratio.

After a third of income going for tax, you can use 50% of your income to live off and save only 16%. You have 3 years to save for 1 year of retirement.

This is very close to what people are actually spending on savings.

These principles assume that you continue your current lyfestyle and that your savings actually reduce in value over time as you use it and you do not live of the interest alone.

Therefore, I'd rather plan for living to 100 than struggle from 80 to 100. If I kick the bucket by 80, so be it. At least my kids will have a 20 year worth of capital boost.

If some financial event happened and took a big chunk out of my retirement funds, I will not have nothing. If I'm lucky and manage to grow my investment portfolio faster than inflation I could retire at say 50 or 55.

Considering that I am moving to Australia at age 30, I am already at an disadvantage as I do not expect much of my investment portfolio to survive the big move. So I'll stick it out on the discipline for the next 30 years and still hopefully be able to retire at 60.

Again, I'm no financial guru, but at least this is a plan.

[g26130]

I hear some oldies saying that owning an investment property requires you to be on hand to some extent, with all the problems and worries associated with it. Correct me if I'm wrong.

It's true. As owner you are responisble for the property, ensuring it meets WHS and council regulations, maintaining it. Then there's the problem with non-payment and evictions which carry high risks and damages when the tenant vacates. Then there's body corporate meetings. Even in Sydney where there is a high rental demand, it took 2 months for me to find tenants. That's a $3200 loss. i.e. 2 months where I had to make loan payments while the unit remained unoccupied.

[Bronwyn&Co]

That's why I recommend a property manager & landlord insurance. And paying principal & interest on your mortgage.

[HansaPlease]

The best financial advice I've ever heard is: Don't take financial advice from anybody unless they've actually made a bucketload of money themselves.

[Bob]

Hi Bob,

"If Australians get at least A$27 000 a year for a couple" how close is this to the actual pension payment per couple?

Cheers

Et

$524.10 each = $1048.20 for a couple, per fortnight (The Australian gov't always pays pensions and welfare fortnightly)

$1 048.20 x 26 = $27 253.20 a year

Australian Old Age Pensioners, whether getting a full O.A.P. or part O.A.P.) are entitled to a Commonwealth Gov't Seniors Health Care Card.

Most GPs will "bulk bill" OAPensioners so that health care if free. Public hospital care is free for all Australians, whether a pensioner or not, through Medicare. Prescriptions are $5 a time, instead of $32 for the average Aussie. Rates on your family home are rebated by your local council, registration is reduced by the State gov't when you register your vehicle, insurance is often reduced by your insurance company, movies are cheap to see at the cinema, bus and suburban train travel is free, and so on and so on.

In other words, the Australian government and the community recognise the effort that older Australians have made in the past and are helping to make their $$$ go as far as possible.

That $27, 253 for a pensioner will probably go as far as $30 000 to $35 000 for the average Aussie, depending on how often you go to the doctor's, see a movie, travel on buses / trains, etc., etc.

[Bob]

That's why I recommend a property manager & landlord insurance. And paying principal & interest on your mortgage.

Property managers and insurance all comes out of overall income, thereby reducing your full income.

There are tax deductions that people can get into when renting property and there's also the capital increase on the property as the price of housing goes up . . . . . but . . . when you're old and grey, do you really want the hassle of property, with the possibility of lousy tenants trashing the place, or not paying for two to three months???

In your working life, if you are more familiar with property then you can grow your investments in that asset (property) and you can afford to be on hand to personally manage your properties, but when you retire and wish to travel a bit, far away from your properties , you just don't need the worry, so a smart operator looks at the option of switching their investments into shares, buying solid blue chip shares with a sprinkle of mining for a bonus if they do well.

Your shares in BHP and Telstra can go up and down in value, but it doesn't matter if you are investing primarily for dividends long term. Your dividends every 6 months, tax-free, are what you want to look at. That is where your income to live off is coming from. . . . . and there is no need for "managers" or insurance or the likelihood of vandalism and no paying tenants for a month or two.

Investment assets come in a few different forms to grow your money . . . . . shares, property, government bonds, etc. . . . just like energy is in different forms (heat, light, electricity)

You can transfer your investments later in life, as it suits your own personal circumstances just like you can transfer forms of energy (electricity into light or heat)

Shares are far less worry, if in blue chips

Edited June 30, 2012 by Bob

[Riekie]

Spot on. That's exactly what we have done. We arrived in Aus in 1989. My husband was 40. We had no savings. We had a few RAs etc but nothing to write home about. Those have since been cashed in.

The last 24 years we worked so hard that we managed to put away a fair bit of super, pay off our house and put one child through a boys only private school. He is now at university. At the beginning of this year we rented out our house, put our most treasured possessions into storage, sold our cars and moved to Northern Thailand. We are loving it. Wonderful weather if you like the heat, first world conveniences, super cheap internet, good health care, friendly people, great food, and a very very easy way of life. We have found most things to be about one third of the cost in Australia.

Wow, this is the dream we hope to live! Not necessarily Thailand, but somewhere in AsiaPacific... We're basically in the exact same situation as you and at that point in our lives where we have our last kid at uni and desperately need an adventure and a way out of the rat race in Sydney! We are considering a gap year volunteering and then settling somewhere nice for a while. Everything is a bit up in the air at the moment and we're pretty much in a comfort zone, so it's hard to think about uprooting yourself and leave behind friendships you've formed over many years yet again... I guess having to go through another visa process and adjusting to a completely different culture is a bit daunting. (If you're not "fleeing for your life" there seems to be less of an urgency to just do it!)

If I may ask - what is the cost of having your posessions stored? Did you find the visa process difficult? Are you working in Thailiand? Was it easy to find a job/place to stay etc? How long did it take you to adjust?

Sorry, a bit off-topic.... Maybe I should start this in a new thread...

[HansieSlimBergWilKlim]

Wow, this is the dream we hope to live! Not necessarily Thailand, but somewhere in AsiaPacific... We're basically in the exact same situation as you and at that point in our lives where we have our last kid at uni and desperately need an adventure and a way out of the rat race in Sydney! We are considering a gap year volunteering and then settling somewhere nice for a while. Everything is a bit up in the air at the moment and we're pretty much in a comfort zone, so it's hard to think about uprooting yourself and leave behind friendships you've formed over many years yet again... I guess having to go through another visa process and adjusting to a completely different culture is a bit daunting. (If you're not "fleeing for your life" there seems to be less of an urgency to just do it!)

If I may ask - what is the cost of having your posessions stored? Did you find the visa process difficult? Are you working in Thailiand? Was it easy to find a job/place to stay etc? How long did it take you to adjust?

Sorry, a bit off-topic.... Maybe I should start this in a new thread...

Hello Riekie – I thought about sending you a pm but others may find this useful.

Some answers to your queries:

Storage: we downsized a lot. Prior to our move we sold or donated our unwanted junk and just kept what we loved and may need in future. This includes good quality furniture that would be expensive to replace, original artworks, books, family heirlooms etc. The storage unit that we rent costs about $300 per month including insurance.

Airfares to SEA and within the region are affordable. We keep in contact with our friends in Aus via skype and email and go back to Aus for visits. We are still Aus taxpayers hence we keep our Medicare up to date and continue to pay into our super funds and private health insurance. We never had any family in Aus – being in SEA makes it easier and cheaper to see the scatterlings – UK, RSA and China mostly. Plus they all want to come and visit all of a sudden!

We planned the move for about a year and sometimes thought that we were absolutely crazy (so did some of our friends). We have met some very interesting and like minded people over here and we get together often.

Working: husband occasionally works overseas consulting. He can now finally halve his work and stressload. This income is declared in Australia and we pay tax on it over there.

Did you find the visa process difficult? It’s an ongoing issue and can be a pain in the neck. There are a lot of different categories though and they all have different requirements. The retirement extension to our 12 month visa must be renewed every year. I think the Philippines, Malaysia, Indonesia, Cambodia and Vietnam are a lot more lenient. Are you working in Thailiand? No. We are not allowed to work nor are we allowed to own land. Not a problem because we never intended to work here or own property anyway. I worked full time in Aus and resigned a month before we left. So far I have not felt the need to be employed.

Was it easy to find a place to stay etc? Finding a place to stay was the easiest bit! We rent a beautiful fully furnished 3 bedroom 2 bathroom house with a large garden in a quiet leafy neighbourhood for about $1000 per month. We run 3 airconditioners almost 24/7 and the power bill is about $150 per month. We are now in the process of buying a car. It’s quite a bit of shlep but at least we’ll be able to give back the rental car. How long did it take you to adjust? So far the adjusting has been fairly easy but we are learning new things everyday. I find it exciting. For the first time in a long time, I feel free and alive.

We will play things by ear and when the sheen wears off (as I’m sure it will one day) we will find somewhere else or go back to Australia.

[Riekie]

Wow, thanks for all that! It sounds so exciting. You're definitely not crazy, but very brave. Our biggest hurdle is the mental one - the rest we will be able to deal with as it comes. I just know there's a big world out there and after living a life for our kids, we now want to live it for ourselves and part of that is to see and experience another world. If only I can break through this comfort zone... Have a great life in Thailand - its awesome what you're doing!

[Bob]

I've heard of Aussies living in Thailand on the cheap. You just need to put A$50 000 in a local bank and that qualifies for a residence visa, I believe.

Before I rushed off and lived in a part of South East Asia, I'd be checking the political situation and whether any money I had there was safe.

There is always the situation of rampant corruption in these countries and petty theft. like what you have come out of. An Australian woman last week was stabbed for her handbag in the holiday mecca of Phuket in Thailand. You will always stick out as a rich Westerner and be treated as such, which is good and bad. Good for service. Bad for being a likely target all the time. Sound familiar???

I'm sensing this feeling from South Africans and Rhodesians of not having an attachment to Australia yet.

If you travel Australia as extensively as I have done, you'll find some really exquisite places to stay at, and relatively cheaply also.

The far north of Queensland from Cairns up is to be seen. There are some really pretty places and the lifestyle there so relaxed. Pt Douglas. Mosman. Mission Beach.

Lots of older Australians buy a big caravan and stay in a caravan park for 12 months of the year, with an enormous annexe doubling their undercover living area.

The climate is so warm all year round that you can live under canvas quite easily. Lots do.

Living in Australia brings all the benefits of residency also . . . . . Medicare, ambulance service, A$1 048 in your bank account each fortnight + all the fringe benefits of life once you are over 65. . . . . and any time spent there adds to the 10 years' qualifying time for getting an Australian Age Pension if you aren't eligible for one at the moment.

The north west of Australia is a dry climate. Once you get into the tropics, there are some nice places on the coast of Western Australia like Broome, Exmouth and so on. Life's pretty relaxed there also.

Being an Australian allows you permanent residency in New Zealand and the Bay of Islands at the top of the North Island can be another place to hang up your spurs for a while, too.

Living in South East Asia may be cheap, but once your money is gone, you have to come back to the West for medical attention and so on, so don't be a mad rush to leave the benefits of Australia and New Zealand behind just to live on a budget.

[HansieSlimBergWilKlim]

Hi Bob,

"Living in South East Asia may be cheap, but once your money is gone, you have to come back to the West for medical attention and so on, so don't be a mad rush to leave the benefits of Australia and New Zealand behind just to live on a budget."

What benefits would that be then?

I lived in Western Australia for 24 years. I've been to Broome and Exmouth. A couple of week's holiday up there was more than enough thank you very much. I agree that the East Coast offers some beautiful alternatives, North Queensland especially. But maybe those places are a bit too laid back. There is only so much drinking and fishing one can do in a single day. We also really like the Sunshine Coast but in general find Australia to be insular and too isolated.

Yes there are expats up here who think they can live on next to nothing. They are deluding themselves. Careful planning and research is required. You have to have some sort of steady income. Patriotic as they may be, the sad fact is that some of Australia's older citizens can simply not afford to retire in their home country. The population is ageing at a rapid rate and the government is not making it attractive for people to become self funded retirees. Hence more and more will be relying on the old age pension. The government must wake up, and quickly! I don't see a rosy feature for pensioners. You should thank all of us up here for not adding to the pressure on the already strained system.

[HansieSlimBergWilKlim]

oops Meant future not feature...

[SA Aussie]

Oh, WoW! Very interesting topic. I'm no financial guru, so take this as my opinion only.

So here is my zimdollar's worth.

One of the reasons, and there are sooo many, that we are immigrating is the fact that we will be earning more in international monatary value and be able to save more while having an actual possibility of a future for us and our kids in a fairly safe environment.

I personally believe that you should not have all your eggs in one basket. Invest in housing. Invest in funds. Invest in a small business.

I bought my first house in RSA in 2006 but have never stayed in it. I rented a 36m2 bachelor's flat to live in and rented out the 3 bedroom house. The rent did not cover the bond and I had to pay in an additional R2000/month or so. So essentially I was "buying" it for R2000/month until the rent increased over the next few years to cover it. Right now, the tennants are paying the bond and I pay TAX on whatever is left.

To me it makes sense. The bank buys the house with their money and registers it in my name. The tenant pays the bank. After 10 or 20 years, depending on if you payed profits into the bond or not, the house is fully yours. So now you have the capital gain and monthly income on an investment for which you did not really pay much or anything in the first place.

Now I have not checked the Aus TAX law yet, but I am sure, considering the property is handled as a business, interest on bonds would be considered an expense and would be deductable, right? I have read somewhere that you actually have to register for an ABN (business number) and pay tax if your properties bring an turnover of AUD75,000 or so a year.

My only mistake, is buying the 3 bedroom house that the 2 of us are living in now on a bond. I have to pay the bank and I cannot claim the interest and maintenance expenses back from tax. In Aus we will stay in a small... no, tiny little relatively cheap place again. You should not have a bond on the home you are staying in... ever. Continue buying properties and have tennants pay for them but NEVER make use the rental income until you retire. In 40 years your tennants should be able to buy you at least 4 houses if not more. Considering that people will spend 25% or so of their salary on housing you can expect an amount from rental income equal to that of the avarage person or family staying in your houses. This rent will also increase with inflation every year to cover your increased expenses. When you die your kids will inherit 1 or more each putting them to a huge advantage when their retirement comes.

Remember also that more people will be able to afford a R2000 flat than say a R8000 house. In addition if one tennant stops paying you will not have such a huge impact to absorb. So with house I mean 25% to 30% of your salary. This could mean 2 flats instead of a house. Maintenance is usually also a lot less on flats than on houses.

The worst thing to spend money on, is a car. I have never owned a car with less than 148,000 km on the clock and I have never paid more than R70,000 for it. Sure, I don't get to shine with my fancy 4x4 Fortuner and I have to maintain my car myself, but it still gets me to work and back and still burns the same fuel.

Okay, I have to admit, lately I have been walking or sometimes cycling the 8km round trip to work and back. Selling my car would put R60,000 towards a bond reducing interest and I would not have to pay a rediculous anount on insurance.

Keep in mind, no matter what the financial situation is, people will always need the following in this particular order. If you can supply any of these at any time you will always have an income. Not be rich, but have an income:

1. food and water

2. shelter or a place to stay in

3. clothes

4. transport

One thing that we can not manufacture is land. There is just so much habitable land out there. Get yourself as much of it as you can. In 50 years, if you have the last big yard that was not turned into 4 smaller yards with houses, it will be worth a lot.

I remember stories from my Grandpa, from times of growing up during the war and having his first pair of underwear at age 11 and his first pair of shoes when he went to high school. Having to cycle on them old backpedal cycles in a suit for 30+ km to go visit my Grandma when they were still dating. Life is sooooo much easier nowdays and we have a lot more than we think. We just need to put some away for that rainy day.

[SA Aussie]

Jacques , I admire your discipline but I think you are too hardcore. Life is difficult enough as is. By all means invest , save and be smart with money ,but cut yourself some slack as well. We work hard for our money so allow yourself to enjoy some of it while you have the energy as well BEFORE retirement otherwise you suffer all the way through , successfully retire with heaps of money but you have no energy left to do certain things or your health turns on you and your kids are grown so you refrained from doing certain things with them to save money.. Live a balanced life , but live it. You only have one! NB: If you want that nice new car and can afford it.. BUY it! So you have no regrets when you retire.

[Riekie]

Bob, what you're saying makes sense but what I'm talking about is not living in Asia for a long time - just a few years to experience the lifestyles of other cultures - maybe not sticking to the same country even. Australia will always be our home but while we still have the health, energy & means, we want to see the world and them return home for the cherry on top: enjoying our last years seeing the parts of this amazing country we haven't seen yet. Some of the reasons I'm still in two minds are exactly what you've mentioned: safety, support, etc. Maybe this is just a pipe dream... I think I watch way too much travel TV!... Hehe

[Jacques Voogt]

@SA Aussie

Agreed, life is short and lost time is never found again. Balance is what you need. I do own a nice TV, furniture, couple of homes (actually the bank owns most of them), lots of running shoes, etc. And occasionally I do spoil myself with an evening out or weekend camping. But I do try to look at the requirement when buying expensive items. Do I really need 4x4? if the answer is yes, then I buy it. But if I go on holiday once a year and need a 4x4 for the holiday, it does work out cheaper to just drive a 1600 and rent the 4x4 when needed. Do I need to eat caviar when I go out or will a hamburger be as enjoyable? Do I need to sleep in a 5 star lodge or will a 4 man tent with blow-op mattress be more entertaining when you are awaken by the the loin's roar in the middle of the night in the Kruger. For me, that works. Everyone has to decide what is worthwhile for them and what is not.

When I started working, I started planning my retirement for age 50 when I will hopefully still have some energy to do things. I have also found that owning lots of gadgets and living a classy lifestyle does not bring me happiness. The thing that does bring me happiness is spending time with family and friends. And for that you need money to cover your expenses. The move to Aus will take a bite, but perhaps I will still be able to retire at 55 or 60 and enjoy the pleasure of seeing my grandchildren grow up and tour the world. If I have to work until 70 I think I would barely have enough energy to work anymore, let alone enjoy life. And If at 70 I still need to work to cover my expenses, it means I spent too much while I was younger and now I am starting to become dependent on others... most likely my children either directly or indirectly through the government.

I do not care if my jeans cost R80/$10 at Mr Price or R800/$100 from some Levi store. I will still hike in them and I will still wipe my hands on them after catching a fish. So why spend more than is needed? Besides I cannot picture myself enjoying wiping my hands on such expensive clothes.

So maybe I will die young and my kids will blow every cent I so preciously put a way, I will not be around to care.

And whenever I do go I will have lived and enjoyed every moment of life with little regrets.

Just my opinion.

EDIT: Fixed spelling mistake. Fishermen can't cash fish.

Edited July 4, 2012 by Jacques Voogt

[Bob]

yeah . . . well . . . I guess I'm as guilty as the next bloke for wanting to go overseas a bit.

If the economy holds up, we'll be off for up to six months next year to Europe. I can only go for up to six months in any financial year, as I have to be resident in Australia for 183 days in order to qualify for the tax free concession on my superannuation income stream.

Not being resident in Australia means I'll be taxed from the very first dollar . . . . ouch! Even a worker in Australia gets the first $350 a week ($18 200 a year) tax free before 15% income tax is deducted from every dollar over that amount.

The Australian gov't makes it easier to retire on money in superannuation. Once you turn 60, you don't pay income tax on an income stream you draw on from your super.

I haven't paid income tax on my super since I turned 60 last year.

That's one way that the Australian gov't has made it easier for self funded retirees to survive!

The other way is allowing them to hold up to just over A$1 million (R8 500 000) in shares, bank savings, superannuation, gold bullion, etc. before they do themselves out of a part Pension. You only need to qualify for $1 a fortnight and you get all the lurks and perks of a Commonwealth Health Care Card which is worth another few thousand dollars over the year.

That's another way the Australian gov't is helping people to retire comfortably.

We can thank the last Conservative gov't for all these benefits to self funded retirees.

I find the Australian Labor Party, which is in power at the moment since 2007, doesn't reward people for taking responsibility for their own well-being.

One case in point is the co-contribution that the former Howard Conservative gov't gave to workers. If they put up to $1 000 voluntarily into their super fund, the Australian used to match it with up to $1 500 in funds . . . . . not a bad return for low income workers, especially.

Since 2009, this gov't co-contibution has come down to $1 000 and now only co-contibute a lousy $500 . . . . a third! . . . of what the Australian gov't used to contribute. Not much incentive to save voluntarily for your retirement now, under Labor. I can only assume they all want citizens to be on welfare in their old age and not have savings of their own to draw on!!