Retiring overseas: will it work?

The promise of a ‘more relaxed’ retirement lifestyle is enticing. And a more affordable retirement is definitely highly prized. So should you consider moving overseas for your later years? YourLifeChoices investigates the pros and cons of this big move – and the answer will surprise.

You’ve seen the images. Silver-haired couples strolling on exotic beaches with not a care in the world. It’s easy to imagine yourself there, and the promise of low rent, cheap services and money to spare is almost irresistible. So how close to the truth is this image of a carefree retirement overseas?

In our most recent 2018 Retirement Matters Survey, YourLifeChoices received 5900 responses to 51 questions about retirement. And our 55 to 75-year-old members (82 per cent of total membership) told us that 86 per cent had no intention of retiring abroad, though 45 per cent said they would consider retiring to regional Australia. Only 14 per cent – a tiny proportion, comparatively – said they might retire overseas. But it was enough to prompt us into researching how retirement overseas might work.

There are two main reasons why Australians retire abroad: to return to their birth culture or because they believe their retirement income will go further.

Going back to your heritage is a strong incentive. But can you automatically expect a better deal financially if you pull up stakes and head overseas? And should finances be the only thing you need to consider?

According to our quarterly Retirement Affordability Index™, the main costs for our tribe of Cash-Strapped retirees (those on a full Age Pension who rent) are housing, food, transport and energy, followed by healthcare. These are also the main costs for the Constrained tribe (homeowners on a full or part pension), but the proportion spent on housing is much lower – 13 per cent compared with 36 per cent for renters.

The countries our members favour if they are considering an overseas retirement are New Zealand (14 per cent), Thailand, England (both 7 per cent) Spain (5 per cent), the Philippines, Vietnam and Malaysia (all 3 per cent). With the exception of England, most of these nations will certainly offer cheaper rent or housing than Australia, but they may also have laws prohibiting purchase of real estate by a foreign national.

And as rent is an outgoing which does not build an asset, this is a consideration for those who are thinking of selling a family home to make such a move. While you are relatively young and healthy – in the early retirement years – it is easy to overlook later life needs such as aged-care funding. But this may become a very real need should you become frail in mind or body in a foreign land. Yes, local home help may be very inexpensive, but language and cultural differences may mean you struggle to feel at home in a foreign aged-care facility.

Aged Care Steps director Louise Biti says the romantic side of us may dream of retiring to somewhere warm and exotic and if the cost of housing or living is much cheaper, it may also seem a practical solution for a more comfortable retirement. Unfortunately, most people make these decisions in their early ‘carefree’ retirement years, she says, without full appreciation of what happens when the ‘frailty’ period is reached. 

“Our aged-care system does have some shortfalls, but by world standards it is high quality and relatively affordable with the costs heavily subsidised by the Government,” Ms Biti says.

What about your Age Pension?
With nearly 70 per cent of Australian retirees on a full or part Age Pension, what happens if you wish to claim it overseas? As you may have expected, there are many rules attached to such a move.

Below is a brief summary of the main terms and conditions. In essence, the pension and supplements that you receive overseas will not be as high as the total amount that you receive in Australia. Make sure you do your sums carefully and don’t just assume the full payment will be the same.

Age Pension rules if you retire overseas:

  • If you have been living overseas and return to Australia to claim an Age Pension, you need to remain in Australia for two years before your pension becomes portable.
  • If you are overseas for longer than six weeks, your Pension Supplement will be paid at the basic rate (single $23.40 per fortnight as opposed to $67.30 per fortnight if in Australia).
  • If you are overseas for longer than six weeks, your Energy Supplement (single $14.10) will cease.
  • If you are overseas for longer than 26 weeks, or permanently and have not lived in Australia for 35 years between the ages of 16 and Age Pension age (currently 65.5), then your pension will be paid pro rata. So, if your residency is 15 years, you will be paid 15/35thsof the pension payment you would be due had you remained in Australia.
  • If you’re overseas for longer than 26 weeks, you will be paid an outside Australia rate of $22,809.60 (including basic Pension Supplement) compared to $23,597.60 (including Pension and Energy supplements) when living in Australia.
  • If you’re overseas for longer than 26 weeks, your payment will be made every four weeks – but note that it can take up to six days for you to receive your payment if paid electronically and 20 days if paid by cheque
  • You cannot receive Rent Assistance when living overseas.
  • Income and asset thresholds and Work Bonus remain the same even if you’re outside of Australia for longer than 26 weeks.

Super implications
Additionally, superannuation and taxation rules can vary dramatically from those you are accustomed to within Australia where super is largely tax free. You will likely need specialist financial advice to ensure you fully understand the financial implications of your proposed move. In particular, if you have a self-managed super fund (SMSF), you will not be allowed to manage it from abroad. You will need to consider either closing it, rolling over the funds or appointing a trustee to manage it on your behalf.

When you have a clear understanding of your new pension and superannuation entitlements, you will be able to budget your expected expenses abroad. This will no doubt require travel to where you plan to live, including accommodation, while you search for a suitable home and research other expenses, health services and whether the community is one you wish to join for the long term.

When it’s not a holiday
This is where a major warning must be shared. When we holiday, we are normally able to relax and engage with the destination in a positive manner. A longer-term stay may not have the same rosy glow. So think very carefully about whether you can maintain a positive and productive life in this ‘holiday’ location.

And what about friends and family, particularly grandchildren? Are you ready to give up seeing them frequently? Or, conversely, are you happy to have them come to stay for possibly extended periods? And if you are working, paid or unpaid, will this be sustainable or transferrable to your new country? Will you get a work visa?

Do you speak the language so that you can easily move around and engage socially? What will you actually do when you are there?

While it may be expensive, a longer stay may be necessary to answer these critical questions. If you are a homeowner in Australia you may be able to rent your home or get house-sitters to recoup some of the cost.

Healthcare conundrum
Healthcare is another critical factor. It is essential to research the standard and type of healthcare available in your retirement destination. It may be that there is appropriate and affordable care. Or it may be expensive, or simply not suitable for your needs.

The Australian Government has reciprocal healthcare agreements with a handful of countries, but of those preferred by YourLifeChoices members, only New Zealand and the United Kingdom are recognised. And the level of care varies according to different agreements, so you need to research thoroughly whether you can expect to receive an ‘apples for apples’ coverage.

Countries that Australia has an agreement with are: Belgium, Finland, Italy, Malta, the Netherlands, New Zealand, Norway, Republic of Ireland, Slovenia, Sweden and the United Kingdom.

Your Australian health insurance may not be useful when you are living abroad. You should check the details of your policy very carefully with your insurer.

Another major question for homeowners moving overseas for a long period is whether they want or need to sell the family home. The new so-called ‘downsizing’ legislation makes this look attractive by enabling superannuants to put lump sums into super, but the result is often a loss of pension entitlements. While your family home is exempt from a Centrelink assessment, the proceeds from a sale are not. Again, it is important to seek advice in order to be very clear about the ramifications of this move before you commit.

And what about aged care?
Ms Biti says that before making a move overseas, we should consider the ‘what-ifs’ if you were to become less independently mobile or develop dementia. How suitable would the home and location be?

“Who would help you to manage the arrangements and your finances?” she asks. “It is often not until you get older and more frail that you realise how much you miss the closeness and support of your family and long-term friends.

“Research the healthcare, hospital and aged-care provisions in that country to determine the rules, the standards and what it would cost you. You may need to ensure you can meet all your expenses from your own savings.

“It also may not be easy to return if you decide Australia is a better place to be frail. Getting the approvals for government subsidies need to be done in person and long waiting periods may apply. If you leave it too late, it may be hard to even travel back home.”

In summary
There are real pitfalls attached to a long-term move overseas in retirement. This does not mean it is necessarily a bad idea – but it does require a lot of thought, research and, if you are a couple, complete agreement that this is the best move for both of you.

Over the years, YourLifeChoices has researched and reported on the key ingredients for a good retirement. The critical factors do not change. The top five are:

  • Independence (both financial and physical)
  • Good health
  • A sense of purpose
  • Strong connections with family and community
  • A belief in something bigger than yourself.

It is possible you already have these in your life, here and now. It is possible you can create them in another country. Only you can make that decision. Good luck with whatever you choose.

Are you one of the 14 per cent of YourLifeChoices members considering a move abroad? Or perhaps you have already done so? What are or were your reasons for this? Can you share any downsides?

Written by Kaye Fallick

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