Retirement Planning for Australian Expats: 6 Risks that all Aussie Expats Need to Know

Retirement planning for Australian Expats can be a complex task as it comes with a set of challenges unique to living abroad. Planning for a secure and fulfilling retirement requires careful consideration of your financial goals, investment strategy, and your specific retirement needs.

Whether you are planning to retire in Australia or abroad, Australian Expats need to build a retirement plan that accounts for the risks involved in managing your financial affairs both in Australia and overseas. In this blog post, we’ll walk you through key risks you need to know when it comes to retirement planning for Australian Expats.

1.      Longevity Risk

Many Aussie expats worry about outliving their savings in retirement. This risk is referred to as longevity risk. While life expectancy projections are helpful in assessing how much savings we need, they are based on general factors like birth and gender and don’t account for personal circumstances such as your financial position, health or family history.

To manage longevity risk, retirement planning as an Australian Expat could mean implementing an income layering strategy. This means structuring retirement income in layers. The first layer could be an account-based pension from your Australian superannuation or overseas retirement account, the second layer could be rental income from real estate, and the third could be the Australian pension or overseas pension entitlements, if eligible. This approach helps ensure a steady income throughout retirement.

2.      Sequencing Risk

When Australian Expats invest in their earlier years, they have the ability to recover from market downturns by staying invested over time and increasing savings. However, the situation is vastly different for retirees.

The risk of a market downturn occurring 5-7 years out from retirement, or early into retirement can have a significant impact on your long-term retirement plans, as there is less time to recover from those losses. This risk is referred to as sequencing risk. Whether you’re investing in Australian shares, global equities, or other asset classes, volatility can result in short-term losses. To manage this risk, diversification and asset allocation are key when retirement planning for Australian Expats. Working with a specialist Expat Financial Adviser can help you model different market scenarios and stay on track with your strategy, even when markets get volatile.

A “Bucket strategy” can also be useful to mitigate sequencing risk. By setting aside enough funds to cover your living expenses for a set period (e.g. one or two years) in a cash "bucket," you avoid having to sell assets at a loss during a market downturn. Other "buckets" can hold riskier assets, which are likely to recover as the market improves and shield you from the effects of inflation. The goal is to generate long-term growth in these buckets to replenish the cash buffer as needed.

3.      Investment Risk

When retirement planning for Australian Expats, it is crucial your portfolio is tailored to match your individual risk profile and investment time horizon. Regular review and adjusting your portfolio based on market conditions, your evolving retirement goals, and your risk tolerance is critical to maintaining your desired retirement.

Working with a specialist Expat Financial Adviser can help you construct a well-diversified investment portfolio to weather market downturns and navigate investment markets when retirement planning for Australian Expats.

4.      Inflation Risk

Over time, inflation erodes the purchasing power of your money. it’s important to consider inflation in both Australia and your host country when planning for retirement as an Australian Expat.

For retirees, inflation may require you to reduce your expenses or increase your reliance on your savings to keep up with the cost of goods and services. To combat inflation risk, consider investing in assets that typically outpace inflation, such as equities, real estate, or inflation-protected securities.

For those Australian Expats eligible, the Australian Age Pension can supplement your income and is indexed according to inflation. You may also be eligible for the Australian Commonwealth Seniors Healthcare Card (CSHC) in retirement which can help ease the burden of inflation. The CSHC provides cheaper medicine, bulk-billed doctor visits, and in some States, concessions on utility bills and property rates.

5.      Hyperconservatism – the risk of being too conservative

Hyper-conservatism can affect both investment and spending decisions for Australian Expats. Some retirees, concerned about market volatility, take an overly cautious approach by moving large portions of their retirement savings into cash or term deposits. A Specialist Expat Financial Adviser who can create a spending plan, tailored to your life expectancy and the expected returns in your portfolio can give you the peace of mind to spend in your retirement. They can ensure sound decision-making when markets do get volatile so that you are not switching to cash at precisely the wrong time.

It’s about striking the right balance between having enough growth assets (like shares, real estate, and infrastructure) to protect your purchasing power during retirement, while also holding enough defensive assets (such as cash, bonds, and gold) to provide peace of mind during market downturns.

6.      Unexpected expenses – the risk of being underprepared

Unexpected retirement expenses can include a range of costs such as major home repairs, financial support for children or grandchildren, health-related expenses, or even costs related to divorce.

When planning for retirement as an Australian Expat, the best way to estimate what you’ll spend in retirement is by looking at your pre-retirement spending, adjusted for costs that will no longer apply (e.g. if you intend to pay off your mortgage prior to retirement, this expense will no longer apply). You should also factor in the new expenses that come with having more time on your hands such as travel, leisure or other activities.

While you cannot plan for unexpected expenses, you can ensure you are better prepared if they do arise. This can be done by having an emergency fund held in cash and assessing the probability of unexpected expenditure. Reviewing current health circumstances, the life stage of children or grandchildren and the state of your residence is a good place to start.

Conclusion

In conclusion, retirement planning for Australian Expats requires a thoughtful approach to ensure long-term financial security. By understanding the unique risks involved, you can create a strategy that aligns with your retirement goals. No matter where you plan to retire, taking the time to navigate these challenges now will set you up for a more confident and fulfilling future. With the right planning and professional guidance, Australian Expats can look forward to a retirement that meets their personal and financial needs, wherever they choose to live.

Runway Wealth Management is the trusted Financial Adviser to the Australian Expat community. Our tailored advice is backed by expertise, education and experience, which allows us to be at the forefront of Australian Expat Financial Planning.

If you would like to speak to one of our Expat Financial Advisers about this blog or if you have other queries, we would be more than happy to speak with you. Feel free to send us an enquiry through the ‘Contact Us’ tab provided in the below link:

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General Advice Disclaimer: The information contained herein is of a general nature only and does not constitute personal advice. You should not act on any recommendation without considering your personal needs, circumstances, and objectives. We recommend you obtain professional financial advice specific to your circumstances.