Without the safety net of compulsory superannuation contributions by their employer, many Aussie expats struggle with determining what is the best way to save for retirement while living overseas. Here are five ideas for Australian expats to save for retirement, and one to avoid.
1 : Get your employer to make compulsory superannuation payments into your Australian superannuation fund
If you have been transferred abroad by your Australian employer, and depending on which country you are working in, you may be able to continue to save for retirement by having your employer continue making the compulsory superannuation contributions into your Australian superannuation fund. If you are living and working in a country that is party to a bilateral superannuation agreement with Australia, your employer may be exempt from making superannuation contributions (or equivalent) in the country you are temporarily working provided that they continue making compulsory superannuation contributions into your Australian superannuation fund.
2. Make voluntary payments into your Australian superannuation fund
It may be possible to make voluntary contributions into your Australian superannuation fund while living overseas, however, you should discuss with your financial advisor whether it is tax effective to do so. You may find there are far better and more tax effective alternatives as an Australian expat to save for retirement, as many of the usual superannuation tax benefits are not available to you as an Australian expat. Read here for more information on the implications for your Australian superannuation when moving overseas.
3. Invest in Australian Property
If you plan to return to Australia before retirement or to retire, then it can make sense to ensure you have a foot on the property ladder back in Australia. Even if it may not be your retirement home, having a foot in the property market will at least mean that you won’t be priced out of the market when you are looking for a roof over your head during retirement in Australia. While investing in property has many risks, there are also good tax benefits for investing in Australian property when living abroad.
4. Invest in Overseas Property
With Australia being such a large country and each city being its own microeconomy, it is usually possible to find a property in Australia to purchase at the right point in the property cycle. However, you can also consider investing in overseas property. There are a new set of risks in buying overseas property, but it can provide diversification to your investment portfolio.
5. Build a Low Cost Share Portfolio
Investing in the Australian share market as an Australian expat can be very tax effective, and depending on the tax regime of the country you are living in can be an effective investment strategy.
When investing in the sharemarket, I personally prefer building a diversified portfolio of shares by using exchange traded funds (ETF’s) or index funds. These funds attempt to mirror the performance of the underlying index (eg. the Australian share markets ASX200) and charge a small management fee. Research has shown that ETF’s and index funds consistently outperform the higher cost actively managed funds that are usually heavily marketed to retail investors.
And One Investment Strategy to Avoid
Whatever you do, make sure you don’t get yourself caught up with dodgy offshore investment schemes. Offshore investment plans, offshore pension bonds, life assurance savings programs, whatever the name they are given could end up costing you a lot of money. Many expats are attracted to these products that are heavily promoted by “financial advisors” as a simple and tax effective way to save for your future.
However, many of these supposed benefits can be outweighed by the high fees charged by the promoters, so make sure you get good independent financial advice before investing.