Super Payout and living in SA

[John Bertrand]

Hi all.

 

We were mulling over retirement options for the future. We are currently Aus/SA dual citizens, no kids, living in Brisbane. We're thinking either New Zealand or South Africa. It's still around 10-15 years away (we're 40 now), so lots of time to see what develops in SA. We can also retire a lot sooner in SA with our dollars than in Aus. 

 

That being said, if we do choose to retire in SA, does anyone know what the current legislation says about expat pensions (Super Annuation) tax in South Africa? At age 67, when the super pays out in Aus, it's tax free. You either take a lump sump, or an annuity afaik. If we're living in SA, and it pays out, do the proceeds get taxed, or are they exempt (under current legislation). Naturally I understand that lots of changes can happen in the future, just curious as to what the rules are now.

 

Thanks!

John.

 

 

 

[Bob]

Hi John.

Current rules on the old age pension for Australians is that you'll have to be 67, or maybe even as old as 70, when you come to retire if you're in your forties now.

I am 65 and am getting my Australian old age pension. . . . . . well . . . . part of a pension, anyway.

The Australian government is making it harder and harder every year to get any sort of pension from them to retire on.

I was a blue collar worker for most of my working life, working the last 28 years nearly for the Australian government, and as such, I got a small pension from my workplace.

At the moment, with my work pension disqualifying me from getting my full old age pension of $660 a fortnight (a married couple together get $1,320 a fortnight), I have an income from Centrelink (old age pension) of about one third of that amount each fortnight, to live off.

So many Baby Boomers are hitting retirement age now, with the Australian government's consequential loss of income tax from their pay packets and having to pay out for their old age pensions, increased health care costs (85% of a person's health care cost throughout their lives is spent in the last 3 years of their life), and residential costs.

It is costing the Australian government a fortune with 40% of the welfare dollar spent on old people alone. This will increase much more in years to come.

Two years ago, I spoke to a couple in England that had spent 25 years in Queensland, Australia and had chosen to retire back in England.

The Australian gov't was going to make a person spend 35 years in Australia to get a full old age pension if you retired to an overseas location. Under new rules that came in last year, they would only have got a pro-rata old age pension from Australia of 25 / 35ths of a full pension

In future years, it wouldn't surprise me to see the Australian government only paying a pro-rata old age pension to people retiring overseas and blowing it out to 40 years that you'd need to work in Australia to get a full pension sent overseas.

Your best bet is to max out your superannuation contributions each year and put it in a return that guarantees a good interest rate over the long term (10 year period and longer)

My advice is not to rely too much on the Australian government to ride to the rescue in your retirement if you intend to retire abroad.

[John Bertrand]

Hi Bob, excellent reply, thank you! Some great insights there.

 

When I read up on the age pension rules, it looks like you need to spend at least 9 years currently in Aus before qualifying. But you're right, in 15 years time, it could be 35 or even 40 years, which would effectively render the pension obsolete for many people. I think the regulations for government provided pensions in Europe are much more relaxed (Switzerland for example, pays a lot more to it's citizens, with minimal restrictions, Aus is a lot more strict). So basically, no one should rely on the Aus age pension.

 

Our current thinking is to save a goodly amount of cash outside of super, for 10 years and then retire around age 50-55, potentially overseas (South Africa, Madagascar?). Your dollar will go a lot further there. Then, we get an extra cash boost from when super pays out at age 67. That's the 10000m strategy, but  I'd love to hear from anyone who has done (or is contemplating) something similar.  Surely better to retire in the third world earlier, than slaving away till 67/70?

 

Out of interest, would 1 - 1.2million AUD (excluding super and primary residence) be enough to buy you a good retirement in Aus currently? It's a rough figure I've always had in my head. I know forums are not the right place for financial advice, but always good to chat to actual people rather than financial advisors.

 

Thanks

John.

 

 

 

 

[FromDurbs]

Your plan should also factor in health care costs, since these are highest in retirement.  You would not have any health care cover in South Africa, unless you pay a lot for private insurance, which I believe is more expensive when you join later, whereas you would have full cover in Australia.  

[John Bertrand]

Thanks FromDurbs, yes I read that the private medical (eg. Discovery) adds a huge loading if you join later. We were Discovery members for years, but it's unlikely they will take this into account. Can anyone shed any light on the medical policies for late joiners?

 

 

[ChrisH]

The logic is as follows.  If you contribute to a medical aid your entire life you are basically subsidising the older, sicker people in the group.  This model only works if everybody does this from a young age.  They try to discourage people from waiting until they are sickly by loading a monthly penalty onto your premium to "make it fair" to the younger people who aren't sickly who are paying their premiums on a monthly basis.

 

Found this nice page with the actual figures: http://www.medicalaidcomparisons.co.za/Late-Joiner-Penalties.aspx 

[John Bertrand]

Just out of interest, I did some research, and for expats returning to SA, it'll be better to get international medical cover rather than going local.

 

As an example, for a hospital plan:

* 2017 Discovery Classic Core for 2 people:R5142 pm including expat loading.
* BUPA Australia International: R4311 pm - and this has tons more cover than Discovery.

 

 

[Bob]

John,

         when you're set to retire in a few years' time, the demographics of the Western world will be in full swing. 

In just about every western country you can think of, their governments will be under stress to provide for retired people, financially and logistically.

But at the end of the day, I'm also wondering if you would really want to retire in a Third world country where the health care system is much less and you are a foreigner.

If I were wishing to retire overseas at the moment, I'd pick Portugal right now.

In fifteen or twenty years' time it may well be a spot in the Caribbean.

I spent a couple of months in Portugal in 2014 and loved the place. The province of Algarve is situated right along the bottom coast and now has about 20% of its population being retirees from the U.K. It is very popular with British old age pensioners, so I'd have heaps of people to talk to in English and socialise over a glass of wine, cold beer and game of cards or a meal together.

The climate is Mediterranean which is pretty much what half of Australia's coastal cities and towns experience.

Also, retirement is a number of things. Women in particular are attached to their kids and grandchildren, making it tough to stay permanently away for years at a time . . . . .  one reason why I wouldn't  be able to retire there.

There is also the need of seeking out likeminded people to stimulate your mind and help with the isolation of living in another country.

Local native people invariably have their own families and network of old friends nearby, so trying to socialise with them is often an uphill battle. Other English speaking people retiring overseas, however, are in the same boat as yourself and are much more open and willing to associate with others. That's what we found, anyway. My wife and I got on well with the British exPats in Portugal.

Portugal also has a really good, and very cheap, First world health care system. We found that out, also.

So . . . . . if you've got the income stream to support a modest lifestyle overseas, your money will go further and your social life can really take off in retirement, as you have 24 / 7 to play, time wise.

On the other hand, life can be pretty expensive in Australia, but when the minimum income of a couple is $34K a year, with a good medical and hospital system in place for free, it doesn't take a king's ransom to retire Down Under.

I've travelled from east to west and north to south across Australia and have met many older Aussies permanently "on the road". As long as the income keeps dropping into their bank account each fortnight and their wheels keep turning and the caravan doesn't leak, then they are trekking full time, year after year.

There are some great places to hang out in Australia.

I was up in Mataranka, way up in the Northern Territory last July / August, swimming in the hot springs there that flow crystal clear into the Roper River about a km downstream.

It was an idyllic spot . . .  warm every day and evening, balmy nights to sleep through, clear skies every day, stars to look up at in the night-time. . . . . a "five million star" restaurant every evening to dine under.

When you get sick of looking up at the same old stars each night, and have swum all you want in the 32 degrees hot springs that meander downstream, then you just hitch up and head to another spot for the next week / month.

With caravan park fees being around $30 a night, taking it to around $400 a fortnight, that still leaves you close to a "Grand" to spend each fortnight on food, drinks and fuel out of your old age pension . . . . . more, if you've got another income stream flowing into your bank account.

Lots of "Grey Nomads" trekking around the place, camp up for a few days in the bush, just off the side of the road. Perfectly safe, and usually when one or two are camped up, others will pull in also for company. Life becomes more affordable with free camping in the bush from time to time.

You don't have to be a millionaire to retire in Australia . . . . . it just helps.

[John Bertrand]

Hi Bob, some good points there, thanks! I have indeed considered Portugal as a retirement destination. It's definitely on the cards, I'm just considering all the various options at the moment. A lot can change in 10 years. As I mentioned, we're 40 now, so thinking of perhaps retiring at 50/55. I think by then, the world would have changed drastically, and so will our plans. But it's always good to have some general ideas.

 

I think one of the biggest benefits, as you mentioned, to retiring in the third world, is that your money will go further. Hence, you can retire earlier. Instead of retiring at 65 in Australia, you can retire at 55 in eg. Vanuatu. Makes sense to me. Especially if, in 15 years time, the Australian age pension becomes negligible/unworkable, due to more stringent rules. But, most South African's learn not to rely on these mechanisms anyway, since such social security is not available back home. Of course you also need to consider where you are legally able to retire. For us, as AUS/SA dual citizens that would be AUS, NZ and SA and (x country where you can buy retirement, such as Mauritius, where you need $40,000USD to be granted a retirement visa).

 

 

 

 

[Riekie]

Don't discount places like Thailand, Vietnam etc. This is a good book to give you all the facts about retirement on the cheap in Asia and Europe (Spain, for instance...) I'm reading it at the moment :-)

 

https://www.dymocks.com.au/book/sell-up-pack-up-and-take-off-by-colleen-ryan-9781743317853/#.WNsOjmclG70