Retirement in Australia
Alamy
Australia is not only the home of the koala, the kangaroo, and the duck-billed platypus, but may also be home to that other rare and exotic animal: the secure retirement.

What does Australia have that America lacks? For starters, its retirees enjoy more financial security, better tax laws, and a generally higher standard of living than we do on this side of the globe. That's thanks to a few key differences in government policy -- and some twists and turns the country has taken in the course of history.

As an American who has just moved to Australia for a long assignment -- and, maybe decades hence, a comfortable place to retire -- I've had a chance to look into what's behind the great retirement divide.

The Bull Market Down Under

The Australian shares market (aka, its stock market) has been on a massive bull run for roughly the last 100 years. In fact, according to data compiled by Credit Suisse, between 1900 and 2009, the Australian shares market was the best-performing market in the entire world.

More recently, over the past 30 years, Australian shares have returned on average 11 percent per year. Returns like that can certainly create some sizable nest eggs.

Of course, with the global financial crisis in 2008 and 2009, portfolios shrank on both sides of the Pacific. But Australia was spared two of the most devastating economic blows from that crisis -- specifically, a huge housing crash and a surge in unemployment.

In Australia, home prices didn't dive like ours, and there was no mass wave of foreclosures. That can be traced largely to a few local factors: Australia's desert geography holds major development to the coasts, so the great waves of suburban sprawl that fed housing booms -- and busts -- elsewhere never happened there. (Whereas, for example, North America's Sonoran Desert can support a massive, ever-growing metropolis like Phoenix, most of Australia's arid Outback simply couldn't.) Local regulation has also kept the Aussie housing supply from expanding too rapidly. And even for those who found themselves in trouble, Australia's banks are far more inclined, by law as well as by disposition, to do short sales rather than foreclosures. But fewer Aussies got into mortgage trouble: By and large, Australia's lenders never jumped on the sub-prime bandwagon either.

Meanwhile, unemployment there never rose above 6 percent. The heart of Australia's economy lies in its massive resource deposits, and thanks to nearby China's hunger to buy them, the global financial crisis never really became local news Down Under.

A "Super" System

Another thing that Aussies needn't fret as much about is the state of their future financial security.

In the U.S., those near retirement age are worried about the "security" in Social Security, and many people well below retirement age wonder if it will even exist by the time they reach their golden years. Australians long ago tackled the key issues we face now -- issues of government liabilities, private employment, and retirement savings.

Some 20 years ago, foreseeing the aging of the population and the untenable strain this would put on its pension system, the Australian government instituted a retirement savings policy known as "superannuation." This requires employers to pay 9 percent of each employee's salary -- above and beyond each employee's take-home pay -- into a savings account. (Employer contributions are set to rise to 12 percent by 2020.)

Accounts are invested, either at the discretion of the employee (i.e., a "self-managed super fund") or placed into a larger fund pool and managed by investment professionals.

Employees can contribute additional money if they wish. Accounts are taxed annually, but upon retirement, funds can be withdrawn free of tax -- a setup similar to our Roth IRAs.

The superannuation system was meant to gradually replace the government pension program, with privatization less the aim than simply the outcome. Today, those nearing retirement in Australia have balances averaging in the $210,000 range for men and $100,000 range for women. This compares to an average 401(k) balance of $143,300 for American citizens in their 50s, according to Fidelity Investments.

The system is still young, however. No group of Australian workers has yet spent their entire careers within the superannuation system, and balances should one day be far higher for workers nearing retirement age. And retirees may also still receive income from the government in the form of that frankly named "old age pension," which is means- and income-tested for those whose super-funds don't cover the full costs of their retirements, who suffered investment losses, or who weren't employed long enough. This is Australia's rough equivalent to Social Security.

According to a 2013 HSBC survey, "the average Australian currently expects 30 percent of their retirement income will come from the pension," in comparison to American retirees, who expect to receive about 38 percent of their income from Social Security.

More Taxing Problems

Outside of these retirement plans, Australians who invest enjoy better tax treatment than Americans who buy similar types of stocks.

Dividends, for example, are a common source of income for retirees in the U.S. and Australia. But a key difference in Australian tax law means Australians often receive more generous amounts.

In the U.S., corporations pay taxes on their profits, and have the option of paying out a portion of these profits to shareholders in the form of dividends. Shareholders then are required to pay taxes on those dividends they receive, typically at a rate of around 15 percent.

Not so in Australia, where companies are allowed to pay taxes on profits and then pass on the tax benefits to shareholders, eliminating the "double taxation" of the U.S. (The government effectively gives investors back the tax the company pays, then taxes the investor on the lot, a kind of "look-through taxation" in which the investor just pays the difference between what the company paid and what he or she owes.) Correspondingly, in part, dividend yields tend to be high Down Under, with yields in the 8 percent or 9 percent range not uncommon.

So should the U.S. go the way of the Aussies?

Of course, this summary of the Australian and American systems is both rough and oversimplified. It would take hundreds of pages, maybe a dissertation or two, to detail the differences and similarities. But a few basics are worth pointing out: Australian taxes are higher than U.S. taxes, but salaries are much higher, too -- the minimum wage is nearly $16 an hour. There's good universal health care, and child care is heavily subsidized for working parents, among other things. Bill Bryson has called it the Norway of the South Pacific.

Still, the direct comparison raises intriguing points. Could the U.S. benefit from examining and possibly adopting some Australian financial policies? Share your thoughts in the comments section below.

Motley Fool contributor Catherine Baab-Muguira recently moved to Australia for a long assignment. She misses American ketchup.


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bpapworth

No one is really interested in the Oz tax code. But the author fails to mention the immigration rules which are a rather high barrier and strict regarding Americans especially in the financial area. This retirement idea was the point of the article and it was not a focus, at all ??

May 06 2013 at 4:38 PM Report abuse -1 rate up rate down Reply
captjhs

I spent 21 days in Australia last year. It is great country to live in. Now the drawbacks: Gas is $7.50 AU per gallion, a can coke is $4, there is a 15% tax on everything, food is about twice as expensive. To eat out, you can expect to pay a minimun of $20 for any from breakfast to dinner. Even fast food cost more. The only exception was beer and wine seemed cpmparable. A typical ranch style house in the suburbs will run you starting at $200k, that a basic house, almost no yard. A 700 sq ft apartment in most cities will start around $400K and the higher you go the higher the price. In a high rise you add $250k for a balcony. Now the real kicker. If moving there to retire you have to invest $500k in a business or bank account. Your not eligibile for state health care until after several years. Plus you are eligible for their social security unless you have paid in. Now the nasty news. Your retirement income from the states is taxable in AU and US, there is no agreement to off set and the worse is that US social security may end if you become an AU citizen. As I said a great place to live, but it is obvious that the author of this article didn't bother to read the immigration hand book from AU and very possibily has never experience day to day life without an expense account.

May 06 2013 at 12:42 PM Report abuse rate up rate down Reply
schlee777

Like this article, "Move to Australia?". A big difference between USA & Australia is
that Australia doesn't have our problem of having millions of illegals to feed and support.
Australia seems to have a strict immigration laws and they apply it. Unlike in the USA
certain political party encourage the illegals and even reward them for breaking
our law. Also, Australians (gov't included) seems to be dedicated for the good
of its people, unlike in USA (like today). I say, for those who can , move to Australia
is a great idea. They seems to treat fairly.

May 06 2013 at 12:03 PM Report abuse rate up rate down Reply
1 reply to schlee777's comment
setanta54s_back

he heeeeeeee australia LET IN the muslims and HAS PROBLEMS from IT-
and exactly WHY THEY CHANGED their standards REMAINS unspoken.
FOR CRRRSAKES not that long ago--greeks etc were let in and WERE CALLED
wogs and if you KNOW the old rhymin slang you KNOW WHAT'S A WOG-
so why did THEY accomodate arab islamics that THEY ALREADY KNEW do not assimilate ?
australia has their problems--but of course any huffiepoop REFUSES TO GO INTO THEM.
and THEY CALL THEM ASIANS which is another LOAD--

May 06 2013 at 12:20 PM Report abuse -3 rate up rate down Reply
1 reply to setanta54s_back's comment
setanta54s_back

http://frontpagemag.com/2013/dgreenfield/australian-judge-finds-muslim-cultural-differences-valid-excuse-for-rape/

google this as many do NOT like frontpage-

and this bs IS going on there and sweden etc.
mediyuuh forgot to tell ya.

May 06 2013 at 12:37 PM Report abuse -3 rate up rate down
normwood

We have traveled to Australia several times to visit with our son and his family. It is a beautiful country and a wonderful place to visit. However we found the cost of living to be much higher than in the United States which the above article does not seem to address.

May 06 2013 at 7:48 AM Report abuse rate up rate down Reply
harlan2502

If we attempted to adopt several of the intelligent Australian policies while the democrats control the White House, there will propaganda espoused by the Republicans calling it socialism, communism or some other "ism." The Dems will be trying to circumvent capitalism. There will be millions of toothless southeners and midwesterners brainwashed into believing that the government is stealing from them and that actions to help the common good are unAmerican..

May 06 2013 at 7:39 AM Report abuse +1 rate up rate down Reply
1 reply to harlan2502's comment
setanta54s_back

so they're NOT stealing ?
what ARE THEY DOING ?
garnishing income for their bs social security,then we you retire IT CONTINUES WITH MANDATORY MEDICARE FEES DEDUCTED from THAT CHECK-
forcing taxpayers TO FUND ILLEGALS AND THEIR KIDS
on and on for decades.

you WANT EURO BS ?
then simply pack up and go.

diMs are dying to get a strangle hold on states like TX etc WHERE THEY HAVE billion plus surplus and the residents are NOT TAXED UP THE WHAZOO like ny ,ct,ca etc the diM cesspools.

so try and DO IT. PUT euro crappolla as the new norm.
you won't like the end result.

May 06 2013 at 11:21 PM Report abuse rate up rate down Reply
Wayne McGlothlin

Why would a retired couple be looking for "childcare tax advantages"? I've got a feeling Australia would get small very quickly...a plane ride to anywhere else would be in order. I'd like to see comparisons with New Zealand though...

May 06 2013 at 4:28 AM Report abuse rate up rate down Reply
Annika

After reading some of the posts here I've looked at the Australian immigration website to see if emigrating to Australia is even feasible. Of course they do have a few requirements, such as general health (TB, Hepatitis, HIV screening) and good conduct (no substantial criminal record), but aside from all that they do make a special provision for retirees; it's called "The Investor Retirement Visa".

"The Investor Retirement visa enables state and territory governments to sponsor self-funded retirees to settle in regional, rural and low population growth areas of Australia.
Applicants must be 55 years or older, have no dependents other than a partner, significant assets and investment or pensions that can be used to establish a lifestyle in Australia and to generate income. They will be required to pay a second visa application charge to offset the possible cost of accessing aged care or nursing home services at a future time. "

Now, I don't know what "significant" means in the way of actual numbers, but looking at the high home prices there I don't think anyone with less than $1 million would qualify.

May 06 2013 at 3:14 AM Report abuse +1 rate up rate down Reply
1 reply to Annika's comment
sugarcreekchile

Australia doesn't let just anyone in. If you want to retire in Australia, you'ld better have a lot of money. They don't want anyone who will be a drain on their economy. If you're not completely self-sustaining, they don't want you.

May 06 2013 at 7:23 AM Report abuse +1 rate up rate down Reply
Duncan

I bet she misses real mayonaise too...best foods/hellmans. What she did not say was what the typical person needs to live on. I spent some time in Darwin and loved it...wouldn't mind going back.

May 06 2013 at 2:23 AM Report abuse rate up rate down Reply
1 reply to Duncan's comment
Duncan

I forgot, specially if that person is already retired... I know my military pension and SS would follow, probly still have the medicare fee deducted, but if theres is better then it might be a good deal...

May 06 2013 at 2:26 AM Report abuse rate up rate down Reply
oneshot5555

Do you think Australia is going to let a bunch of BROKE Baby Boomers immigrate to their country?

Don't think so.

May 06 2013 at 1:43 AM Report abuse +3 rate up rate down Reply
threedawgknights

America should, but were too GREEDY. We allow the rich to rule. There rule is to screw the working man, while getting richer all the time. They control everything, including Congress, with their wealth and America's common working people are at the low end of the totem pole, and always will be as long as rich rules!

May 05 2013 at 11:51 PM Report abuse +2 rate up rate down Reply