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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.
June 23, 2022

Top Financial Issues for Australians Living and Retiring in the United States

The United States remains a popular destination for Australian expatriates, and for good reason. The U.S. is a great place to live and retire, offering a high standard of living and plenty of things to do.

However, Aussies who move and stay in the United States face unique financial situations and challenges. From retirement planning to foreign currency exchange, there are a few financial issues that Australians should be aware of before making the move. Equipped with this knowledge, you can make informed decisions about your finances and ensure a comfortable retirement in the United States.

Continue reading to learn about the top financial concerns for Australians living and retiring in the United States.

How to Access Superannuation in the United States

How and when you can access superannuation is often a big concern for Australians retiring in America. The good news is you can access your super even if you live overseas, including in the United States.

In general, you can start accessing your superannuation when you reach your preservation age. For those born on or after July 1, 1964, this starts at age 60.

If you are between ages 60-65:

  • Reaching age 60 is a condition of release once you have ceased employment.
  • To satisfy the retirement provisions of Australia's super legislation, you must (1) have reached your preservation age, (2) have ceased gainful employment, and (3) have no intention to become gainfully employed again.

If you are over 65:  

  • Reaching age 65 is a condition of release even if you have not ceased employment. Thus, once you reach age 65, you can access your super even if you are not yet retired. 

Tax Treatment of Superannuation Distributions

From the Australian Taxation Office (ATO) perspective, your superannuation distributions are generally tax-free after you reach age 60 and cease employment, or reach 65.

According to the United States Internal Revenue Service (IRS), however, superannuation distributions are subject to income tax. This is because the IRS does not classify superannuation as a qualifying retirement account. Instead, it typically views superannuation as either a Foreign Grantor Trust or an Employee Benefit Trust. So for Australians in the US, this can have implications come tax time.

Can I Access My Superannuation Before My Preservation Age?

If you have not yet reached 60 (or your preservation age), you may still access your fund through a transition to retirement (TTR). However, a TTR income stream changes the tax treatment of your superannuation. According to the ATO, you may have some tax-free withdrawals, but at a certain threshold, your withdrawals will become taxable. 

You may be able to access your superannuation early if you are suffering from a terminal medical condition or are experiencing severe financial hardship. However, you will need to meet certain criteria in order to qualify for early release. 

Is There a Yearly Withdrawal Minimum?

Yes, individuals receiving a super pension must withdraw a minimum amount each year. The minimum amount is calculated as a percentage of your account balance and is dependent on your age. As of 2022, this minimum percentage ranges from 2 to 7% depending on your age. These reflect the temporary minimum drawdown rates. The temporary minimum drawdown rates will end on June 30, 2023, and the default minimum drawdown rates will apply on July 1, 2023. These rates will range from 4 to 14% depending on your age.

Should I Have Life Insurance Through My Super Account While in the US?

In general, it is not advisable that Australian expats living in the US get life insurance through superannuation. There are a couple of key reasons for this. 

First, even though the premiums are tax-deductible when obtained through one’s Superannuation account, it is much more expensive to obtain life insurance in Australia than in the United States. Second, if you are not a tax-dependent of the deceased, you may be hit with a large tax bill when the life insurance benefits are distributed. This would not occur with US life insurance, where the benefit would go to the beneficiary as stated in the life insurance policy, tax-free. Thus, Aussie expats are typically better off buying life insurance in the US.

Best Ways To Transfer Superannuation Funds from Australia to the United States

Once you are ready to receive your superannuation distributions, you still need to decide how to transfer the funds to the United States. This involves exchanging the Australian dollars for US dollars, and it's important to have a plan to minimize the fees associated with the transfer. 

Here are some of the key strategies to consider. 

Obtaining the Best Rate

The interbank exchange rate is the rate at which banks lend to each other. This is the rate you will see when you look up the exchange rate online. However, this is not the rate that you will get when transferring your money. 

When you make a foreign exchange transaction, you will have to pay a fee to convert your AUD to USD. This fee is called the spread, and it is how the bank makes its money on foreign exchange transactions. 

Australians seeking to transfer their superannuation to the United States should be aware of this fee, as it can eat into your retirement savings. Thus, it's important to seek the lowest interbank spread to save on your transaction. 

‘Limit’ Orders to Obtain the Best Rate

One way that may help you save on the spread is to use limit orders to attempt to get a more advantageous rate for each trade. You do this by setting a limit at which you are willing to buy USD, and the transaction will only go through if the market rate reaches your limit. 

A Systematic Conversion Schedule

Another strategy that may help mitigate the risks of transferring large sums of money when the exchange rate is unfavorable, is to make regular transfers over an extended period of time. By sticking to a consistent conversion schedule, you get the average rate over time, rather than the rate at a single point in time. This dollar-cost averaging approach may help to reduce the impact of large moves in the market.

Should I Own Australian Investment Property When in the US?

Many Australians moving to and retiring to the United States have real estate back in Australia. 

What should you do with it? Should you hold onto the real estate as an investment property? These can provide a great source of income during retirement, but there are some things to consider before committing to holding overseas investment property.

Pros and Cons of Holding Australian Real Estate as an Aussie Expat Living in the US

Pros

  • Consistent income: A renter can provide you with a regular income, which can be helpful in retirement.
  • Capital gains potential: Your property may potentially increase in value over time.

Cons

  • Taxation: You will be taxed at the non-resident tax rate on your investment property income which starts at 32.5% on the first dollar of income. In addition, you cannot receive a CGT concession if you sell the property. With no other Australian sourced income, ownership of this asset will require you to file an Australian tax return. There may also be other taxes associated with being a non-resident such as occupancy taxes and higher stamp duty on purchases.
  • Foreign exchange: You will need to exchange your Australian dollars for US dollars when you receive your rental income and market fluctuations can make for inconsistent income.
  • Overseas property management: The distance can make it difficult to manage a property from afar. Plus, property management fees can further eat into your income. 

Getting Social Security as an Australian Expat Living in the US

If you’ve been living and working in the United States, you likely qualify for US Social Security. After 10 years (40 qualifying quarters) of paying into the system, Australians are eligible to receive US Social Security.

What happens if you have not worked for 10 years in the United States?

Due to the totalization agreement between the United States and Australia, out of the total 10 years, you only need to have worked 1 1/2 years (6 qualifying quarters) in the United States to be eligible for a partial Social Security benefit. So, even if most of your career was spent working in Australia, you may still be eligible to receive a Social Security benefit as long as you meet the 6 quarters rule.

Can I Receive the Australian Aged Pension in the US?

As an Australian who has moved to the US, you are likely wondering if you will qualify for the Australian aged pension. 

To qualify you must meet the following requirements: 

  • You are age 66 or older.
  • You must have been an Australian resident for at least ten years. 
  • You must be an Australian resident and currently living in Australia.
  • You meet the income and asset tests.

This means that practically no Australian expats living and retiring in the US would qualify. However, your individual circumstances will vary, and speaking with a financial adviser who is knowledgeable about both the Australian and US systems can give you a better idea of your particular situation.

Accessing US Retirement Accounts

For Aussies retiring in the US, the Australian Aged Pension is typically not an option. Instead, your retirement plan will rely heavily on the accounts you've set up during your years working in the US.

A well-balanced US-based retirement plan involves a mix of different types of accounts. There are four major types of asset classes, each with its own set of benefits: 

  • Traditional retirement accounts
  • Tax-advantaged sources
  • Income sources
  • Capital gains

Tax-Deferred Retirement Accounts

Traditional 401(k)s and IRAs are the most common types of tax-deferred accounts. With a traditional 401(k) or IRA, your contributions are tax-deductible in the year they are made. This effectively lowers your taxable income for the year, which can save you a lot of money come tax time. 

Then, you pay taxes on the money when you withdraw in retirement. Typically you can only access the funds on these accounts after age 59 1/2. Withdrawing the funds earlier can result in a hefty tax penalty.

Tax-Advantaged Sources

One common tax-advantaged retirement account includes the Roth IRA. Unlike the traditional IRA, you fund a Roth IRA with after-tax income. This means that your withdrawals from your Roth IRA account in retirement will be tax-free.

Income Sources

Starting at age 62 you can begin to collect US Social Security. Depending on your individual circumstances, you may consider taking your Social Security benefits as early as possible, wait until you reach full retirement age, or wait until the maximum benefit age of 70. 

Though they are becoming less common, some jobs in the United States still offer pensions as part of their retirement benefits package. If your workplace offers a pension plan, this is another source of income you might expect in retirement. 

If you own investment properties, you can also consider collecting rent as an income source in retirement. 

Capital Gains

After maxing out the contributions to your tax-advantaged accounts, you may want to consider saving in a taxable account. This investment account or brokerage account is where you can invest in stocks, bonds, and mutual funds. 

While you will have to pay taxes on the capital gains and dividends earned in brokerage accounts, they are a way to invest further for retirement, especially when you have reached the contribution limits for the tax-deferred and tax-advantaged accounts. 

Your work and life circumstances will dictate which types of accounts make the most sense for you and your retirement savings goals. But by understanding the different types of accounts available to you, you can create a retirement savings plan that will provide you with the funds you need to retire in the United States. 

How Arete Wealth Strategists Can Help

There are many challenges that come with being an Australian expatriate living in the United States. However, with a bit of planning, you can feel confident in your financial wellbeing as a cross border citizen. 

At Areté Wealth Strategists we specialize in helping Australians living in America with their financial planning needs. We know your circumstances require a unique approach and we're here to help. To learn more about us and how we can support you, visit our website, or click here to schedule a consultation.

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