Add inner-city crime, galloping power bills, excessive property prices and a manic desire for in-fill dwellings to Australia’s frigid winters, and it’s not hard to see why more Australians contemplate swapping the traditional retirement at home for overseas destinations.
Many retirees are attracted to Southeast Asia in the full knowledge that, in addition to the lure of living in more exotic locations, their age pensions – which they can still qualify for while spending time overseas – go a lot further than in Australia.
While there’s a lot of scepticism around about how much retirees need to live in Australia, the Association of Super Funds of Australia (ASFA) claims singles and couples need A$53,289 and $75,319 respectively.
Assuming you leave the workforce at age 60, and receive 7% return on your super annually, that translates to super balances of $750,000 for singles and $1.05 million for couples.
Given that the average retirement super balance is around $300,000 for men and $200,000 for women, there’s added reason why retirees might be attracted to putting in their lot with overseas destinations.
Top retiree destinations
According to the Annual Global Retirement Index, updated earlier this year, the top 10 cheapest countries where you can retire well include:
- Portugal: Where non-Habitual Residence (NHR) status means you’re exempt from income tax for the next 10 years.
- Malaysia: According to Numbeo, a one-bedroom apartment in George Town costs an average of $278 in the urban areas and $174.
- Spain: According to the travel website Escape Artist, a one-bedroom apartment in the city centre costs about $1,055 a month.
Given that the average income for locals in Southeast Asia cities is $500 - $1,500 a month, Aussie expats can live in comfort for between $1,300 and $2,000 a month.
By comparison, the age pension pays around $2,500 a month for singles and $3,750 a month for couples.
What’s also attractive about these destinations is the opportunity to check out of the workforce earlier than most.
For example, while a lot of retirees have worked hard to amass some retirement booty, their success could become their nemesis.
That’s because tapering on the full age pension kicks in once singles and couples homeowners have $321,500 and $481,500, respectively.
Not unlike Portugal, Bali is also working hard to attract Aussie retirees to live there with special retirement visas, which also include income tax exemptions.
Do you really qualify for age pension overseas?
But hang on, is the Australian government really going to hand out your age pension, even if you do a runner to another country?
Well, yes and no.
Embedded within social security laws is a little-understood provision that allows Australian residents who have lived in Australia for at least 35 years from age 17 to 67 to live anywhere they want in retirement.
However, if you’re not in this privileged cohort, Centrelink won’t allow you to receive the pension if you live overseas permanently.
Those looking to receive the age pension as soon as they return to Australia will also need to convince Centrelink they’re back for good.
However, either way, James Gerrard, principal of Financial Advisers, reminds Australians that their pension concession card will be cancelled within six weeks overseas.
Given that the super and tax implications can be problematic, he also recommends seeking advice about the rules before you leave.
While it clearly requires some planning, if you’ve spent some of your working life in one of the 30 countries Australia has bilateral international social security agreements with (including the United States, New Zealand, Canada, Spain, Portugal, Ireland, India and Japan), you may also be eligible to receive social security benefits from that country too.
Another curly one for retirees moving offshore are provisions, effective July 1, 2019, that stipulate non-residents will lose their CGT main residence exception (MRE), regardless of how long they previously lived in it.
Likewise, property that’s unrented/uninhabited for over six months annually will also incur a levy.
