Home, health and having fun – the tricks to retiring abroad
Cheryl Fankhauser didn’t know a soul in her new home town when she took the plunge and moved to Malaysia.
The former Tweed Heads nurse moved to World Heritage-listed George Town and two years later is part of a friendly community with great social life and rarely bothers cooking.
Why would she when she can dine on the celebrated Nyonya cuisine at a local restaurant for $2?
“There’s a great expat community here and they all look after each other”, she says.
After returning to Australia after three years teaching English in China, Fankhauser, now 65, decided retiring abroad was an option as the numbers didn’t stack up.
“I had a house but by the time I paid insurance, tax and rates I couldn’t afford to retire in Tweed Heads,” she says.
So she rented out her home and investment properties and now lives comfortably off the income in Malaysia.
I had a house but by the time I paid insurance, tax and rates I couldn’t afford to retire in Tweed Heads
She pays $600 a month rent for her apartment in an upmarket suburb and spends about $1,200 a month all up.
She’s just returned from seven weeks in Europe and is already planning a Panama Canal cruise next year.
There’s no accurate data for the number of Australians who are retiring abroad. But we do know 82,708 retirees collected the age pension overseas last year, or 3.3 per cent of the total, up almost 8 per cent in four years. The main destinations were Greece, Italy, New Zealand and Spain.
Smaller numbers are seeking a more relaxed lifestyle in South-East Asia that’s easy on the pocket. The cost of living is 50-80 per cent lower than Australia and it’s just a short flight away from family and friends.
International Living magazine’s 2018 Global Retirement Rankings placed Malaysia and Thailand top overall. For cost of living, the winner was Vietnam. For healthcare, Malaysia. Malaysia and Thailand offer special visas for Australians retiring abroad, excellent healthcare, low tax, they’re pretty safe, friendly and English is widely spoken.
Brett Evans, managing director of Atlas Wealth which specialises in expat finances says 40 per cent of his clients looking at retiring abroad do so because of the high cost of living in Australia. For these clients, Thailand, Cambodia, the Philippines and New Zealand are the top destinations. Others simply say it’s their time. They’ve worked hard, raised a family and now they have more freedom.
Financing the big move is not as difficult as you might imagine. The age pension and super pensions are portable, but there are catches. Anyone thinking of retiring abroad needs to plan not just pensions but tax, accommodation and healthcare.
If you’re eligible for a full or part-age pension you need to be in Australia to lodge a claim unless you live somewhere that has a social security agreement with Australia. For example, Italy has an agreement which means Australians can apply and serve their waiting period in Italy. China does not, so you need to return to Australia to apply and wait two years before you can return overseas permanently and continue receiving payments.
The rate of pension paid to people living overseas is based on the number of years they worked in Australia from age 16 out of 35. Say you worked for 20 years, you would receive 20/35ths of the basic rate.
Super is agnostic about where you live, but some countries tax withdrawals. This is generally not the case in Asia but developed countries may have wealth or inheritance taxes or social security levies, so do your homework.
If you have insurance in your super fund, in the majority of cases it’s no longer valid.
Evans says some super funds refuse to pay pension income overseas and insist you leave the fund. Insurance can also be an issue.
“If you have insurance in your super fund, in the majority of cases it’s no longer valid (once you retire overseas)”, he says.
If you have a self-managed super fund (SMSF) management and control needs to reside in Australia to be eligible for tax concessions.
Before retiring abroad, seek advice to see whether it would be best to wind up the fund, roll over to an industry or retail fund or appoint a personal representative in Australia as trustee. Otherwise, you could end up paying tax of 47 per cent on pension income as well as on assets in the fund.
What to do with your home
Evans says one of the big decisions now is what to do with Australian property. In legislation before the Senate, the government proposes removing the main residence capital gains tax (CGT) exemption for non-residents. Previously expats had a six-year window during which they could rent out their former home and decide to sell or keep it with no CGT consequences. Under the new rules CGT will be backdated to the purchase date.
“People are now selling their homes before they move overseas”, says Evans. It’s not all bad news though, as sellers can take advantage of the new super rules allowing downsizers to tip up to $300,000 each into their super. Evans says another strategy is to withdraw all your super and reinvest it outside super. Then you can draw down as much or as little as you like but be aware that share dividends are taxed differently if you are not an Australian resident.
You still receive franking credits which can be used to offset non-resident withholding tax, depending on whether your adopted country has a double taxation agreement with Australia.
Looking after your health
Unless you move to a country with a well-developed public health system you will need health insurance and premiums can be high.
If your budget is tight, this could be a deal breaker because you can’t just nip back to Australia for free treatment. After five years living overseas you’re no longer eligible for Medicare unless you move back permanently and reapply.
Evans says some people plan to relocate for 10 years or so in early retirement to travel and have the time of their lives, then return to Australia for better healthcare and social services.
Fankhauser has no intention of returning. She has private health cover but says the public system is also excellent. “Healthcare (in Malaysia) is world class. Aged care is not well developed but it’s cheap to bring in a 24-hour carer.”
This article originally appeared as part of a interview with the Sydney Morning Herald.