Many Australian expatriates may not have Australian superannuation support and, as such, may harbor concerns about how they can save for their retirement. In this article we present an alternative method of saving that can help you to prepare for your retirement.
Superannuation and Australian Expats
Australians living in Australia gain benefit from superannuation, which is basically government-regulated savings that are in place to ensure that Australian citizens save enough of their earnings to support themselves during their retirement years. While living and working in Australia, every salaried employee receives a 9% employer contribution to their superannuation and these payments add up over the years to a sizeable sum that can be used during their eventual retirement. However, when Australians work overseas, they usually lose access to these employer superannuation contributions and therefore no longer have any pension support. Such expatriates need to ensure that they remain committed to saving for their future and that they invest a sufficient percentage of their earnings in their future nest egg.
There are two basic options available to Australian expats who wish to create their own retirement fund: formal superannuation or personal savings.
Formal Superannuation Versus Personal Savings
There are a number of issues that will determine whether it is formal superannuation or personal savings that will be most suitable to your retirement fund-
Tax Implications: Depending on where in the world you are earning money, the tax implications of placing your savings into superannuation may determine what actions you take. In the majority of countries throughout the world there are no tax benefits to be gained from contributing to an Australian superannuation. However, you will find that by placing your money into an Australian fund, you are subject to superannuation tax rates of 10 or 15%. On the other hand, there are plenty of personal savings accounts out there that are entirely tax free in any country. As such, it would make more sense to invest your savings in these accounts as opposed to paying unnecessary tax on a superannuation account.
Ease of Access: Once you have invested your money in a superannuation account you will not be able to access it until you retire. This can be advantageous as it can ensure that your cash is out of harm’s reach and that you’re not tempted to raid it on a rainy day. However, it will also mean that you may lose access to your savings for many years to come and will have very little financial freedom in terms of what you can do with your own cash.
Lack of Certainty: One of the biggest problems associated with formal superannuation plans for expatriates who live overseas is that the Australian government can change the rules and regulations governing such accounts at any time. As such, if you invest in a superannuation account you may find that you plan changes with very little notice. Through investing your retirement savings in a personal savings plan you will have much more control over your money and can make choices that are in your best interests.
Lack of Knowledge/Expertise: In both cases, your lack of financial expertise can put your savings at risk and it can be very easy to make decisions that you may later regret. For example, in the case of a self-managed superannuation fund, there are a number of strict rules that govern when you can invest money and where. If you fall foul of these rules you may face serious penalties.
Regardless of which method you choose to ensure that you have sufficient retirement benefits to support yourself during your golden years, always make sure that you secure adequate financial advice from independent experts when making any important decisions regarding your future.