Retiring Overseas - the "6 & 6" Alternative
We have significant experience in providing advice to Australians living and working overseas as expatriates, and the principals of SR have themselves worked in a very wide variety of countries, across Europe and Asia. In this context, we cannot stress enough how different living in a country is from being a tourist, and how anyone considering retiring into a foreign country needs to give it the upmost consideration and planning - encompassing a multitude of considerations, including the financial aspects of any move, how it might affect your relationships within your family and your medical and health coverage.
We absolutely understand the desire on retirement to make best use of the flexibility it affords to travel and/or widen your experiences. However, we would like you to give some thought to rotating out of Australia, perhaps 6 months in and 6 months out ("6 & 6"), whether to the same destination or a different location every year, rather than considering a permanent move.
We think the approach provides many of the advantages of living in a country, giving you a real chance to immerse yourself in a culture, without a number of the drawbacks. Some of the advantages we see include:
Less Liability, Simpler Taxation and Less Hassle
As we mention elsewhere, most superannuation is not subject to Australian taxation after age 60, but it may be subject to taxation if you become resident in another country. This doesn't tend to be the case with the Asian countries at the moment, but it is certainly the case with developed countries, such as those in most of Europe, the US, Canada and Japan.
However, in many countries, as long as your stay is less than six months - and you will still need specific tax advice just to make sure - you will not be regarded as a tax resident and subject to tax on your worldwide/Australian income. You will only remain liable to tax in Australia - which may be minimal if you are on a superannuation income stream - and need to submit one tax return each year; until you have had to juggle two tax returns (usually with different year ends) you won't appreciate the advantage!
Of course, if you are continually travelling while outside Australia, perhaps cruising, and never really establish a base, then you will almost certainly never be tax resident anywhere else other than in Australia. High quality fractional ownership schemes now also exist which allow access to purchase built overseas accommodation and, if you are so inclined, swap access to other properties around the world. These schemes minimise the time you would otherwise spend managing and maintaining an overseas property, but they are very much a lifestyle rather than than investment decision, and the best schemes have stringent, high level entry requirements, in terms of participant income and asset requirements.
Many individuals and couples who have not lived overseas before severely underestimate the impact of being separated from family and friends. Moving overseas for six months at a time means that connections and broader relationships can be maintained, even if Murphy's Law sometimes seems to dictate that major incidents (only) happen while you are overseas.
"Choosing your Seasons"
If you're looking to retire somewhere in tropical or subtropical Asia, timing doesn't matter too much - with the exception of avoiding monsoons. But if you are looking to spend time in Europe or in a mediterranean climate, you have the flexibility to pick the best of seasons and miss winter if you are not a skier or love the cold.
The Internet and all things digital has made it easier to both travel and live overseas, keep in contact and manage your financial affairs. You can now:
- Book long-term accommodation in your preferred country directly, while also renting out your house in Australia, if that's your preference. Our recommendation in the latter case though is that you appoint a property manager in Australia - it's tax-deductible and relying on family and friends is just not fair, or practical, in the long-term.
- In Europe it's even possible to lease or rent cars on a long-term/monthly basis. Elsewhere, even renting cars when required, or locating yourself in city locations that don't require a car, is still going to be cheaper than owning a car.
- Bank and superannuation accounts can be managed through the Internet, and international money transfers just as easily. Look beyond the Australian banks for transferring money in and out of Australia, as banks usually represent the highest cost approach. For foreign currency transfers, OFX, an ASX listed company, is a very good alternative.
- Apply for and sometimes even extend travel insurance while overseas - see below
Australian sometimes forget that we have a very good healthcare system, on any basis of comparison. Neither Australian health funds under domestic policies or Medicare however provide cover outside Australia and unless you somehow have access to the local healthcare system, and it is of good quality, you need to make separate arrangements to ensure that you have health insurance that provides cover both locally and will cover the cost of repatriations to Australia when it if major health issues arise. You also need to bear in mind that we believe there is an increasing likelihood that access to Medicare will be dependent on your being an Australian tax resident - limiting the ability of Australians living overseas to return to Australia on a short term basis for medical and hospital assistance.
To be frank, comprehensive International health insurance is an expensive proposition; the cost increases directly with age and cover is usually not available for pre-existing conditions. Not arranging cover should not be considered an option, the risk is too significant, unless the country of residency has a reciprocal healthcare agreement with Australia and therefore you have access to public health facilities.
However, if you're not staying permanently overseas and remain an Australian resident then you can take out Australian travel insurance - which is becoming more flexible in terms of offering covering to individuals even in their 80's, although costs rise significantly after age 70. While travel insurance might only cover emergency health conditions (and you need to read the fine print carefully), it should include emergency repatriation to Australia. Repatriation can be enormously expensive and you must ensure adequate cover.
Try before you buy!
Even if you have your heart set on moving overseas to live on a permanent basis, we would still suggest that you try it initially for six months, just to be absolutely certain that it's the right thing to do in the long-term!