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.
Tax Havens?
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nun
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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?
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
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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.
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
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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
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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.au/retail/ret/investments/managed-funds-retail.jsp#fundstab
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ERD50
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
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
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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
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
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
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Perhaps, I didn't express my statement clearly enough. It was intended to apply to the case where one was already retired.
REWahoo
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That's a key point...Actually he said it was "a" key, not "the" key.
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?
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It's the key pointThat's a key point...
ERD50
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
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
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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
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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
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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.
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.
nun
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The OP is from Australia so while having a lower requirement for income without mortgage payments will also mean a lower tax bill for him we should not go off into too US centric tax, SS and medical discussions. I think he's looking for general advice.
Hey - I lost my keys. Anyone seen them?
OP -
Once you have maxed out your tax sheltered options you just start up an account that is not tax sheltered. Not much you can do about that, but you can pull your money out whenever you want. Typically this would be a simple discount brokerage account with low fees, with mutual fund or ETF investments. Your taxable account and retirement accounts are all part of your portfolio, though you usually want to put any tax-inefficient investments into your tax sheltered accounts.
For the U.S. we pay "ordinary income taxes" of 0% to 35% on "ordinary income". We pay 15% on gains on most investments held over one year, excluding dividends. We pay 15% on many dividends but others count as ordinary income. Of course that will probably change next year. So, there is some tax advantage to stock investments, though inflation eats some of that. Australia may have something similar.
No law says retirement savings have to be held in a special government approved retirement account. Some just aren't as tax advantaged.
Once you have maxed out your tax sheltered options you just start up an account that is not tax sheltered. Not much you can do about that, but you can pull your money out whenever you want. Typically this would be a simple discount brokerage account with low fees, with mutual fund or ETF investments. Your taxable account and retirement accounts are all part of your portfolio, though you usually want to put any tax-inefficient investments into your tax sheltered accounts.
For the U.S. we pay "ordinary income taxes" of 0% to 35% on "ordinary income". We pay 15% on gains on most investments held over one year, excluding dividends. We pay 15% on many dividends but others count as ordinary income. Of course that will probably change next year. So, there is some tax advantage to stock investments, though inflation eats some of that. Australia may have something similar.
No law says retirement savings have to be held in a special government approved retirement account. Some just aren't as tax advantaged.
teejayevans
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I did a quick check of Aus. tax laws, that's what I read, obviously you need to check it out. Your FP sounds more like a broker (ie salesmen who is trying to sell you something with high commissions), find one who doesn't make $ from what they sell you, but will charge you a flat fee to sit down with you review your situation, or try to find some good books by Aussie authors on financial planning (most are US centric), although the basic concepts remain the same. All the govts around the world have been making promises they can't keep...it's not a Aussie only problem.
Sounds like you are new to all this, try to read as much as you can and educate yourself, including Aus. tax laws.
TJ
Yes I am new to this. I came to Australia for medical school. I racked up 200k in educational debt which I have mostly paid off. Now I am realizing that my health condition is likely going to limit the number of years I can work. My money is mostly in an account earning 5% currently. But I still have to accumulate wealth. I am trying to figure out how to do that part of it in the most efficient manner but it seems like there are many policies in place to make that difficult! When I said investing in a foreign country I should have said Canada, where real estate is much cheaper than Aus. (And I have citizenship there). I did just read a thread about how a re-adjustment is forthcoming on Canadian home prices as well though... I do need to research more about Aussie tax law and which investments make the most sense. It is great to get opinions and ideas here as well.
