Tax Havens?

[dr_popeye]

I live in Australia and our super annuation scheme doesn't allow for withdrawals until 60+ currently. This doesn't work so well for early retirement. Someone suggested investing in a tax haven country. I really need to start understanding basic finance. Wish I had taken some business and economics courses previously.

[nun]

Saving money outside of retirement plans and LBYM is the best way to ER.

As far as tax havens go they are often a scam......what is your citizenship and residency?

[dr_popeye]

Quote:

Originally Posted by nun Saving money outside of retirement plans and LBYM is the best way to ER. As far as tax havens go they are often a scam......what is your citizenship and residency?

Australian... And Canadian. But have been in Aus for ages. I have worked in both countries. It might be remotely possible to get 2 old age pensions in 25 years or so but I suspect by then they will not be much help. Alot of my questions are probably better asked on an Aussie early retirement forum. Too bad I haven't found one yet!

[nun]

Quote:

Originally Posted by dr_popeye Australian... And Canadian. But have been in Aus for ages. I have worked in both countries. It might be remotely possible to get 2 old age pensions in 25 years or so but I suspect by then they will not be much help. Alot of my questions are probably better asked on an Aussie early retirement forum. Too bad I haven't found one yet!

The good news is that you aren't a US citizen as that would greatly complicate your taxes and finances.

For your tax situation an Aussie forum would be best, but for general principles here is a s good as anywhere.

The best way to avoid taxes is to use the tax deferral of retirement accounts. Tax havens often come with issues like loose regulation and high fees on financial products and you have to make sure you comply with Australian law and the law of your chosen tax haven.

IMHO the best investment is the one where you decide not to spend your dollar at all, that's an immediate return, so LBYM is the key to ER so that you have balances in both retirement and non-retirement accounts.

[dr_popeye]

Quote:

Originally Posted by nun The good news is that you aren't a US citizen as that would greatly complicate your taxes and finances. For your tax situation an Aussie forum would be best, but for general principles here is a s good....

Well here is a general question. aus just limited super annuation to 25k max contribution per year before getting taxed at a high rate.

if i build up rrsps in canada and super in aus i will not capitalize on compound interest at higher numbers that would occur if the retirement funds are in one spot right?

Now that they plan to highly tax anything over 25k invested into super it almost makes an early retirement plan impossible. so i am trying to figure out if i should work part time in each country to build up 2 separate country retirement plans.

[teejayevans]

Quote:

Originally Posted by dr_popeye Now that they plan to highly tax anything over 25k invested into super it almost makes an early retirement plan impossible. so i am trying to figure out if i should work part time in each country to build up 2 separate country retirement plans.

Forget the retirement plans for now, what about non-retirement accounts? You get 50% discount on capital gains, so I would invest some money in stock index funds, this would also allow you to access to money before 60.
TJ

[dr_popeye]

Quote:

Originally Posted by teejayevans Forget the retirement plans for now, what about non-retirement accounts? You get 50% discount on capital gains, so I would invest some money in stock index funds, this would also allow you to access to money before 60. TJ

Hmm, ok. I will look into that. Are you sure this also works in Australia? (the 50% discount?) My financial planner was trying to talk me into a product that involves a 10k investment but gets a loan for 50k worth of stock investment. I am only really starting to look into these things now. The Aussie gov scares me. They are talking about raising the retirement age to 70 within the next 10 years and I suspect that they will do something similar with the super annuation funds since they recently took the max down from 50k to 25k per year. I think the last thing they want is to encourage early retirement!

[nun]

Quote:

Originally Posted by dr_popeye Hmm, ok. I will look into that. Are you sure this also works in Australia? (the 50% discount?) My financial planner was trying to talk me into a product that involves a 10k investment but gets a loan for 50k worth of stock investment. I am only really starting to look into these things now. The Aussie gov scares me. They are talking about raising the retirement age to 70 within the next 10 years and I suspect that they will do something similar with the super annuation funds since they recently took the max down from 50k to 25k per year. I think the last thing they want is to encourage early retirement!

The trick to ER is to have funds in accounts outside of retirement accounts/pensions so you can bridge the financial gap between ER and when those retirement accounts start to pay out.

I'm a little worried about the advice your planner is giving you. They seem to be advising you to trade on margin or buy a heavily leveraged investment. Either way I would not take the advice and maybe look for different advice or just go it alone. Also when I hear "loan" its a good bet that it will come with interest and fees. So just walk away from that. Keep things simple and inexpensive. Avoid investments that anyone tries to sell you or promise big returns.

Paying off the mortgage is one key to ER, so if you have one and can make extra payments do that. When you don't have that to worry about ER is a lot easier.

Look at saving/investing money outside of your super. Start with saving accounts as in Australia they give 5% plus interest which we'd jump at if we had it in the US. Also many of us invest in low cost index funds with Vanguard so look at their Australian company, although their fees are higher than I'd like to see.

https://www.vanguardinvestments.com....l.jsp#fundstab

[ERD50]

Quote:

Originally Posted by nun Paying off the mortgage is one key to ER, so if you have one and can make extra payments do that. When you don't have that to worry about ER is a lot easier.

You should have added 'in your opinion'. Not everyone agrees with that, many of us ER'd with a mortgage, and I fail to see that it makes a big difference either way, let alone being 'key'.


-ERD50

[FIRE'd@51]

Quote:

Originally Posted by ERD50 You should have added 'in your opinion'. Not everyone agrees with that, many of us ER'd with a mortgage, and I fail to see that it makes a big difference either way, let alone being 'key'.

While I agree with you, I just want to add that in order to service the mortgage (all else equal), one has to raise his/her AGI, which can have negative tax consequences.

[ERD50]

Quote:

Originally Posted by FIRE'd@51 While I agree with you, I just want to add that in order to service the mortgage (all else equal), one has to raise his/her AGI, which can have negative tax consequences.

And how does one pay off a mortgage w/o raising their AGI? The money has to come from somewhere. If it was done with after-tax money, then the mortgage payments could be done the same.

Considering that most people would be in a higher tax bracket while working, it would seem that paying the mortgage in retirement could have positive tax consequences. There are many different scenarios, and that is why I object to people saying something like this is 'key'.

-ERD50

[FIRE'd@51]

Quote:

Originally Posted by ERD50 And how does one pay off a mortgage w/o raising their AGI? The money has to come from somewhere. If it was done with after-tax money, then the mortgage payments could be done the same. Considering that most people would be in a higher tax bracket while working, it would seem that paying the mortgage in retirement could have positive tax consequences. There are many different scenarios, and that is why I object to people saying something like this is 'key'.

Perhaps, I didn't express my statement clearly enough. It was intended to apply to the case where one was already retired.

[Alan]

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Originally Posted by ERD50 There are many different scenarios, and that is why I object to people saying something like this is 'key'. -ERD50

Actually he said it was "a" key, not "the" key.

[REWahoo]

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Originally Posted by Alan Actually he said it was "a" key, not "the" key.

That's a key point...

[dr_popeye]

Quote:

Originally Posted by ERD50 You should have added 'in your opinion'. Not everyone agrees with that, many of us ER'd with a mortgage, and I fail to see that it makes a big difference either way, let alone being 'key'. -ERD50

I find the whole concept of buying real estate difficult in Australia. Houses are ridiculous in Victoria and NSW. I visited a friend in Melbourne and the houses literally start at 600k. And that is for an old dilapidated house in a bad neighbourhood. 350-550k for a 2 bedroom apartment. Multiple outside economists have commented on the over valuation of the Australian housing market.
It is partially bumped up by the concept of negative gearing. People on high incomes just keep buying houses and showing a loss to offset taxes. I guess I could jump on board as well but I get the feeling the prices will tumble like a deck of cards when the recession finally hits here.
I hate paying rent but at the same time I think that the prices will be re-adjusted in the next few years.
One thought I had was to purchase a property overseas in a market where rental returns will actually pay down the mortgage over time. ----------------------------------------------------------------------------- Argggh! How do I get spaces between paragraphs?

[MichaelB]

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Originally Posted by REWahoo That's a key point...

It's the key point

[ERD50]

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Originally Posted by FIRE'd@51 Perhaps, I didn't express my statement clearly enough. It was intended to apply to the case where one was already retired.

It still applies either way though, doesn't it? If the money to pay the mortgage is taxable, then the money to pre-pay the mortgage must be taxable also? And a lump sum like that would normally have a bigger tax hit than spreading it out over many years.

One must consider their particular circumstances, but I still don't think it is key, or even "a key" for most in regards to ER-ability.

-ERD50

[NYEXPAT]

Quote:

Originally Posted by dr_popeye I find the whole concept of buying real estate difficult in Australia. Houses are ridiculous in Victoria and NSW. I visited a friend in Melbourne and the houses literally start at 600k. And that is for an old dilapidated house in a bad neighbourhood. 350-550k for a 2 bedroom apartment. Multiple outside economists have commented on the over valuation of the Australian housing market. It is partially bumped up by the concept of negative gearing. People on high incomes just keep buying houses and showing a loss to offset taxes. I guess I could jump on board as well but I get the feeling the prices will tumble like a deck of cards when the recession finally hits here. I hate paying rent but at the same time I think that the prices will be re-adjusted in the next few years. One thought I had was to purchase a property overseas in a market where rental returns will actually pay down the mortgage over time. ----------------------------------------------------------------------------- Argggh! How do I get spaces between paragraphs?

Might want to look at Lima, Peru? look at the website global property guide for rental return rates in countries of interest.

[FIRE'd@51]

Quote:

Originally Posted by ERD50 It still applies either way though, doesn't it? If the money to pay the mortgage is taxable, then the money to pre-pay the mortgage must be taxable also? And a lump sum like that would normally have a bigger tax hit than spreading it out over many years.

Well, in my original post I did say "can have", not "will have", negative tax consequences. You have suggested a case where not paying off the mortgage may have positive tax consequences.

I was thinking more in terms of already having the after-tax cash to pay off the mortgage (isn't this the case with most ER's?), and further thinking in terms of things like the amount of SS that is taxable (think tax torpedo) or the Medicare Part B premium, which are affected by one's AGI.

[nun]

Wow, mention paying off a mortgage and stand back. OK I should have said IMHO. But the OP asked for advice and given his/her situation I though it appropriate to mention mortgage pay down.

I worry that the OP is trying to come up with various speculative schemes to ER. Buying foreign real estate can be problematic and I'd only consider it once I had a good financial foundation. Right now I'd be putting as much as I could into super, saving into a 5% savings account, looking at Australian mutual funds, making sure I had no high interest debt and looking to reduce my expenses.