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Ashley works with clients to bring strategy, structure, clarity and confidence to their global financial lives and keep it that way. ​In 2013, Ashley founded Arete Wealth Strategists, a fee-only financial planning and investment management firm for Australian/American expatriates.
January 23, 2024

Key Financial Planning Steps for those Planning to Retire to Australia

Most Australians that move to the U.S. eventually decide to retire back to Australia. Making the most of what you have acquired in the U.S. requires diligent planning and financial preparation to ensure that it is done properly and efficiently. In this blog post, we will outline the eight essential steps involved in financial planning to make the most of your finances when retiring in Australia.

Remain a U.S. Citizen/Permanent Resident or Not?

As the U.S. is one of the only nations with a citizenship-based taxation system, it’s crucial for both you and your spouse if they’re a citizen or U.S. permanent resident, to evaluate your current and intended immigration status before making any financial decisions. As a U.S. citizen, you will be required to file U.S. taxes and will face certain investment restrictions even after moving back to Australia.

Seeking guidance from a qualified cross-border tax professional is highly recommended to determine your potential tax responsibilities and develop an appropriate strategy.

Familiarize Yourself with the HEART Act and determine whether you might face an Exit Tax should you Relinquish/Surrender your U.S. Status

The HEART Act and Exit Tax regulations (IRC 877A) pertain to US citizens and long-term green card holders who intend to renounce their US citizenship or relinquish their green card. Our firm has written extensively about how one may reduce or eliminate the exit tax altogether with proactive planning, which can be read through these posts on our website.

Think Through your Real Estate Decisions

Many Australians choose to invest in Real Estate during their time in the United States, but careful consideration must be made regarding whether to sell or rent out their properties before retiring back to Australia.

Despite the relative weakness currently of the Australian dollar to the US dollar, Real Estate remains very expensive in most Australian capital cities. Some are quite surprised to discover that a home sale in the U.S. may not cover all of a purchase in Australia. Exploring financing options, such as a mortgage or a Securities-Backed Line of Credit (SBLOC), may help facilitate your Australian Real Estate objectives.

Evaluate Healthcare and Aged Care Options

Will you go onto private health insurance in Australia or rely on Australia’s Medicare, the country's comprehensive healthcare system? Lifetime health cover loading, which is applied to those who spent time off of the national system, can affect your healthcare costs based on your period of absence from Australia (an additional 2% cost is added to your premium for every year absent). You may be able to attain an exemption waiver from this loading fee by asking for a statement from the immigration department attesting to your having lived abroad.

It’s statistically highly likely that you’ll need some form of care when you get older so you would do well to research aged care services and the associated expenses. To have a better understanding of your potential coverage costs, the MyAgedCare.gov.au website has a simple calculation tool that can provide a quote for what you can expect to pay under that system.

Minimize Foreign Exchange Fees and Manage Currency Volatility

How do you plan on converting your U.S. dollars into Australian currency? Effectively managing foreign exchange transactions requires minimizing fees and mitigating currency volatility. Some traditional methods of currency exchange can cost up to $30,000 per $1mm in fees. A good cross-border financial advisor should have far more cost-effective methods of currency exchange, which can greatly reduce those fees when that time comes.

Also, be sure to keep a U.S. bank account open as it won’t be possible to open one after you leave. Stay vigilant about exchange rates and consider strategically timing your transfers to optimize your financial resources.

Asset Transition Plan

It would be wise for those planning to retire in Australia to create a balance sheet of current investable assets and a forecast of what they will look like after the move to have a comprehensive understanding of changes based on taxes, currency changes, and other factors. This can help to prevent “sticker shock” and provide a sober view of where one will stand financially after the move.

Even with the plan to retire in Australia, those who have been residing in the U.S. may want to always keep some U.S.-based assets for a couple of  reasons:

  1. Despite pressure from China and Russia, the USD is still the world’s reserve currency
  2. As Morningstar consistently finds in their biennial research study, The Global Investor Experience, the U.S. tops the list of nations that are favorable to investors overall. The main reasons for this finding are:
  3. Overall expenses (trading platforms, fees, etc)
  4. Availability of funds to invest in (number, diversity of funds)
  5. Disclosure rules

Keeping investible assets and portfolios in multiple countries may cause more work during tax time, but it can also provide for a lower cost investment environment and far more options and opportunities to invest in. As with all of our suggestions, you should speak with trusted, competent tax and financial advisors to determine the best options for your specific situation.

Transition/Distribute Retirement Accounts Tax Efficiently

If you have worked in the U.S. and took part in a retirement savings plan, the taxation rules for those plans can be cumbersome depending on your decisions and planning prior to your move. One of the most consequential decisions on how those accounts will be treated from a tax perspective is whether you are or will remain a U.S. person after retiring in Australia.

The “saving clause” within the US/Australia Double Taxation Treaty (1984) and the amending protocol from 2001 essentially means that a U.S. person (and their assets) can always be taxed as such, no matter where they reside. This can mean that you will be required to file U.S. taxes every year (even after moving), including:

Estate taxes can also be a major issue, and U.S. persons may be liable for both Federal and State-based estate taxes depending on location. The Federal estate taxes can be up to 40% for global estates with a net worth of over $12.96mm (2023 amount). Australians may be quite surprised to learn that these estate value calculations may include joint tenancy property, life insurance proceeds, and even assets gifted within three years before death.

Choosing to renounce U.S. citizenship or U.S. person status may make some taxation simpler, as that allows one to revert to the taxation that is outlined in the tax treaty. Australia does not have an estate tax, and being taxed as an Australian on U.S.-based retirement accounts means the account will be treated as a foreign trust. The amounts contributed by you and your employer will be treated differently, but overall the process is far simpler.

There are also advanced techniques that may be used to enhance the taxable outcome of an Australian citizen so that they may get a complete or near-total step up in basis on those accounts when moving back to retire in Australia. For high-net-worth individuals with over a million dollars in their retirement accounts, this can have a significant financial impact.

Update Your Estate Plan

Once settled back in Australia it will be time to review and update your estate plan to align it with your new Australian tax resident status. There can be legal disparities between the US and Australia that may necessitate adjustments to your estate planning strategy, and treaty or legal changes that make prior plans no longer optimal. Trusts may also face issues of tax treatment between the two countries.

International estate planning attorneys suggest that you have a will in each country to determine the distribution of the assets that remain there. You should also update your powers of attorney to ensure that a competent adult is present in each country in which you have assets to act on your behalf if you’re unable to.

By diligently following these key financial planning steps, you can enhance your preparedness for retirement in Australia and secure your financial well-being throughout your golden years.

At Areté Wealth Strategists, we have years of experience helping individuals and families successfully make the most of their global financial lives. Visit our website to learn more about how we can help you. When you’re ready to reach out, get started with your free consultation.

Disclaimer: The information provided in this blog post is for informational purposes only and should not be construed as personal financial, tax, or investment advice. It is always recommended to consult with a certified professional before making any financial decisions.
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