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Around the World => Australia Discussion => Topic started by: SaucyAussie on August 09, 2020, 08:56:48 AM

Title: Advantages/Disadvantages of seeking FIRE in Australia vs. USA?
Post by: SaucyAussie on August 09, 2020, 08:56:48 AM
I live in the US but grew up in Australia so I have some familiarity with both financial systems, as I'm sure many of you do also. What differences do you see that could effect achieving FIRE and living post-FIRE?

A couple of obvious ones I see -

1. US Social Security - the more money you earn the higher the payout in retirement.  Vs. Australia aged pension - assets and means tested.
2. Aust. Universal Healthcare - allows early retirement without having to worry too much about healthcare expenses.  US still a bit of a crapshoot.

Others?  What about 401k vs Superannuation?
Title: Re: Advantages/Disadvantages of seeking FIRE in Australia vs. USA?
Post by: mrmoonymartian on August 10, 2020, 03:35:50 AM
Here's a few more points a dual-pat should consider when planning their firecation:

3. No ability to withdraw retirement savings before 60 in Aus, except in exceptional circumstances. Causing many people to lean and/or coast fire till 60, and fat fire thereafter.
4. The US tax collector wants a piece of US citizens' money no matter where in the world you earn it, whereas if you leave Aus for tax purposes the Aus tax bastard stops sending you Christmas cards.
5. In the US you can put $22MM worth of business ownership in a dynasty trust with no expiration date and no CGT until sale, to ensure privilege is forever.
6. In the US you can flee to Canada after you land, whereas there is no need to flee from Aus unless the emu war starts up again.
7. Aus is a long way from civilization if you don't count Asian civilization, and we generally don't. Except Japan, which is actually pretty cool because it doesn't like China. So SpaceX's passenger ICBM will be very popular with rich Aussies of the future who don't care about the environment, but until then you just have to put up with the DVT on long-haul flights to Europe.
8. Australia only has a pitiful few cities worth nuking in WW3. Here rural survivors will probably still be able to grow some crops in the first year of the long winter, and kangaroos will be plentiful well after the TP runs out. Whereas the US will be a desolate wasteland basically from the start, with only wind whistling through the dusty rubble of broken dreams to break the silence.

Hope this helps!
Title: Re: Advantages/Disadvantages of seeking FIRE in Australia vs. USA?
Post by: SaucyAussie on August 10, 2020, 07:14:26 AM
Ha!  Good to know.

I plan on splitting my time between the two countries in "retirement" so I am looking for opportunities to optimize.
Title: Re: Advantages/Disadvantages of seeking FIRE in Australia vs. USA?
Post by: MustacheAndaHalf on August 10, 2020, 12:13:12 PM
1. US Social Security - the more money you earn the higher the payout in retirement.
Your social security payments are not directly proportional to income - there's "brackets" for lack of a better term.  So if you have a lower income, you might get 9/10ths back in retirement.  As your income gets higher, you enter a bracket where you only get 1/3rd of it back... and at the highest incomes, the government only returns 1/7th of your contributions.  At least, that's what I recall from making a spreadsheet to calculate it, years ago.

I think they had another penalty for people who worked less than 30 years, so for FIRE that might be significant.  I'd encourage you to do some research on social security payments, or play around with a social security calculator.  Make sure you try 25 years versus 30 years, and lower vs higher income.
Title: Re: Advantages/Disadvantages of seeking FIRE in Australia vs. USA?
Post by: SaucyAussie on August 11, 2020, 08:27:31 AM
1. US Social Security - the more money you earn the higher the payout in retirement.
Your social security payments are not directly proportional to income - there's "brackets" for lack of a better term.  So if you have a lower income, you might get 9/10ths back in retirement.  As your income gets higher, you enter a bracket where you only get 1/3rd of it back... and at the highest incomes, the government only returns 1/7th of your contributions.  At least, that's what I recall from making a spreadsheet to calculate it, years ago.

I think they had another penalty for people who worked less than 30 years, so for FIRE that might be significant.  I'd encourage you to do some research on social security payments, or play around with a social security calculator.  Make sure you try 25 years versus 30 years, and lower vs higher income.

Yes, you are correct, but our statements are not mutually exclusive.
Title: Re: Advantages/Disadvantages of seeking FIRE in Australia vs. USA?
Post by: MrThatsDifferent on August 12, 2020, 02:30:50 PM
Outside of what’s been mentioned, I think the US is generally a lot cheaper: homes, food, cars, etc. So your retirement money can go further. You also have more options of where to live. Of course you have to deal with, well, Americans and a lot of the social injustice that is a daily part of life (if you care about those things). Oh, and your closer to Europe for cheaper flights and visits.
Title: Re: Advantages/Disadvantages of seeking FIRE in Australia vs. USA?
Post by: Arapiles on August 17, 2020, 03:54:42 PM
I'm not sure whether kids are part of the equation.  But if so, it might be worth factoring the cost of higher education in the U.S compared to Australia.  I did most of my post-grad work in the U.S and I was amazed by the amount of debt incurred by some of my American friends.  Of course, government (Commonwealth or state) subsidisation of tertiary education in Australia has been in decline for many years.  But the difference in access and cost is still, even today, highly significant.
Title: Re: Advantages/Disadvantages of seeking FIRE in Australia vs. USA?
Post by: catprog on August 22, 2020, 04:10:44 PM
1. US Social Security - the more money you earn the higher the payout in retirement.  Vs. Australia aged pension - assets and means tested.

I would compare the US social security with Superannuation not just the aged pension.
Title: Re: Advantages/Disadvantages of seeking FIRE in Australia vs. USA?
Post by: SaucyAussie on August 23, 2020, 06:55:53 AM
1. US Social Security - the more money you earn the higher the payout in retirement.  Vs. Australia aged pension - assets and means tested.

I would compare the US social security with Superannuation not just the aged pension.

Yes it is hard to do a direct comparison, but I've always felt like Super is closer to 401k?
Title: Re: Advantages/Disadvantages of seeking FIRE in Australia vs. USA?
Post by: deborah on August 24, 2020, 01:52:24 AM
You are eligible for the aged pension no matter how much you’ve worked, so it’s not at all like social security. Superannuation is partly funded by employers, so in that way it’s similar to social security. Your 401k is also similar to superannuation. However, superannuation is better than either.
Title: Re: Advantages/Disadvantages of seeking FIRE in Australia vs. USA?
Post by: SaucyAussie on August 24, 2020, 07:30:39 AM
You are eligible for the aged pension no matter how much you’ve worked, so it’s not at all like social security. Superannuation is partly funded by employers, so in that way it’s similar to social security. Your 401k is also similar to superannuation. However, superannuation is better than either.

That's true, I believe you have to work 10 years to qualify for social security.  I also agree there isn't really a direct equivalent to the aged pension in the US. (Hopefully not much of a concern for Mustachians in either location.)

Can you expand on your last sentence?  It seems to me that the combination of SS and 401k would put one ahead of super?
Title: Re: Advantages/Disadvantages of seeking FIRE in Australia vs. USA?
Post by: deborah on August 26, 2020, 03:21:46 AM
I’m a complete neophyte on US stuff - I only know what I’ve learnt here, and the following could easily be incorrect. However, the tax breaks associated with superannuation are difficult to better. You don’t pay any tax at all on your superannuation payments when you are old enough to be in retirement phase (unless you’re in a small minority), and the earnings within superannuation in this phase are also tax free. As I understand it, there is some tax associated with the accounts in the US, as they’re tax deferred.

You also get franking credits back on any dividends within superannuation that have earnt them. As I understand it, the US doesn’t have franking credits. You are also able to withdraw as much as you like from superannuation.

Before you retire, I think that the tax treatment of superannuation is also better, but I could be wrong. At a minimum, your employer must put 9.5% of your wage into superannuation, which appears to be higher than what they put in in the US. My understanding is that you actually don’t necessarily get back what you’ve put into social security if you’re a higher earner, whereas everything that’s added to superannuation automatically belongs to you immediately.

As a result of all this, superannuation probably accumulates faster than the US equivalents, and the safe withdrawal rate is probably higher. The government doesn’t want people to have superannuation left at death, so there are minimum withdrawal rates depending on your age, and these are generally higher than the 4% SWR. This can mean that as you age more of your money is outside the superannuation umbrella.

However, it doesn’t really matter if your superannuation runs out because the old age pension exists as a safety net.
Title: Re: Advantages/Disadvantages of seeking FIRE in Australia vs. USA?
Post by: SaucyAussie on August 26, 2020, 06:37:12 AM
I’m a complete neophyte on US stuff - I only know what I’ve learnt here, and the following could easily be incorrect. However, the tax breaks associated with superannuation are difficult to better. You don’t pay any tax at all on your superannuation payments when you are old enough to be in retirement phase (unless you’re in a small minority), and the earnings within superannuation in this phase are also tax free. As I understand it, there is some tax associated with the accounts in the US, as they’re tax deferred.

You also get franking credits back on any dividends within superannuation that have earnt them. As I understand it, the US doesn’t have franking credits. You are also able to withdraw as much as you like from superannuation.

Before you retire, I think that the tax treatment of superannuation is also better, but I could be wrong. At a minimum, your employer must put 9.5% of your wage into superannuation, which appears to be higher than what they put in in the US. My understanding is that you actually don’t necessarily get back what you’ve put into social security if you’re a higher earner, whereas everything that’s added to superannuation automatically belongs to you immediately.

As a result of all this, superannuation probably accumulates faster than the US equivalents, and the safe withdrawal rate is probably higher. The government doesn’t want people to have superannuation left at death, so there are minimum withdrawal rates depending on your age, and these are generally higher than the 4% SWR. This can mean that as you age more of your money is outside the superannuation umbrella.

However, it doesn’t really matter if your superannuation runs out because the old age pension exists as a safety net.

Thanks for all that, very helpful!

So it sounds like superannuation is "never taxed".  The only thing like that in the US is HSA accounts which can only be used for medical expenses.
Title: Re: Advantages/Disadvantages of seeking FIRE in Australia vs. USA?
Post by: deborah on August 26, 2020, 12:43:27 PM
No, money going into superannuation is taxed at 15% if it hasn’t already been taxed. Until it’s in retirement phase, earnings are taxed at 15% too.
Title: Re: Advantages/Disadvantages of seeking FIRE in Australia vs. USA?
Post by: SaucyAussie on August 26, 2020, 01:41:29 PM
No, money going into superannuation is taxed at 15% if it hasn’t already been taxed. Until it’s in retirement phase, earnings are taxed at 15% too.

Ah gotcha.  For 401k - money goes in tax free, it grows tax free, but then withdrawals are taxed as regular income.
Title: Re: Advantages/Disadvantages of seeking FIRE in Australia vs. USA?
Post by: MrThatsDifferent on August 29, 2020, 01:55:53 PM
Flip side is that’s it possible to access 401k before the preservation age but not Super. That makes early retirement planning slightly trickier.