Want a Comfortable Retirement? Move to Australia

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Retirement in Australia
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.

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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.

Best Cities for Retirees
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Want a Comfortable Retirement? Move to Australia

Population (metro area): 2,356,285

Unemployment rate: 6.6%

Cost-of-living index: 94.9

Median household income: $46,381

Doctors per 100,000 people: 196

The home of the Pittsburgh Steelers is the nation's safest big city, according to Farmer's Insurance. It also offers world-class hospital facilities, including the University of Pittsburgh Medical Center, a $10 billion health system with 20 hospitals and more than 3000 physicians. The median home price is $119,900, according to Clear Capital, nearly $40,000 below the national average. For those who don’t want to worry about upkeep, there are plenty of retirement communities in the Allegheny County area, says Craig Davis, president of VisitPittsburgh.

Carnegie-Mellon University and the University of Pittsburgh provide intellectual energy in the Steel City, which shook off its sooty image years ago. Heinz Hall, the cornerstone of the cultural district, features Broadway shows, concerts by the Pittsburgh Symphony Orchestra and other events.

Newcomers should brace for typical northeastern winters, but the area also enjoys all four seasons. And natural disasters are rare. "You're not going to experience an earthquake or sandstorm," Davis says.

Photo: Wikimedia Commons, Plastikspork

Population (metro area): 18,897,109

Unemployment rate: 8.8%

Cost-of-living index: 154.8

Median household income: $63,553

Doctors per 100,000 people: 247

High housing costs aside, the Big Apple has a lot to offer retirees, including car-free living, some of the nation's best medical facilities, restaurants on every block and museums all over town (many of which offer senior discounts). Plus, you can get everything from sushi to DVDs delivered right to your door. Retirees with flexible schedules can find last-minute travel deals out of JFK or LaGuardia, or on one of the cruise lines that depart from New York.

New York is also home to 27 "naturally occurring retirement communities," or NORCs. These communities are home to residents of all ages, but a significant number of tenants are seniors who have chosen to grow old in the complexes. NORCs typically have social services programs on site or nearby. And younger residents, aware that they, too, will someday grow old, are available to shovel the sidewalks or carry groceries.

Photo: Wikimedia Commons, Gryffindor

Population (metro area): 543,376

Unemployment rate: 9%

Cost-of-living index: NA

Median household income: $49,114

Doctors per 100,000 people: 158

Located midway between Jacksonville and Miami on the Atlantic coast, Palm Bay offers the kinds of amenities people who retire to Florida expect: lots of parks, two golf courses, an aquatic center and, of course, the beach. Brevard County and Palm Bay in particular have long attracted retirees who enjoy fishing. Anglers can fish for bass, redfish and sea trout on the Indian River, and the Stick Marsh, currently under restoration, offers more opportunities to land a big bucketmouth.

The area is still recovering from the collapse in home prices, so retirees can find a lot of house (or condo) for their dollars. Retirees interested in turning their passions into a business will appreciate Palm Bay's business-friendly climate, says Vicki Northrup, president of the Greater Palm Bay Chamber of Commerce. The Web site Askmen.com recently included Palm Bay on its list of top cities in the country to start a business.

Photo: Wikimedia Commons, Leonard J. DeFrancisci

Population (metro area): 85,579

Unemployment rate: 5.7%

Cost-of-living index: NA

Median household income: $46,652

Doctors per 100,000 people: 129

This small city offers plenty of ways to stay engaged and fit into retirement. Residents can take advantage of a wealth of cultural and educational activities at Oregon State University, in the heart of town, or hit the bike trails along the Willamette River. The Cascade Mountains are within a two-hour drive, and the Oregon Coast is an hour away.

For medical care, Good Samaritan Regional Medical Center provides treatment in dozens of specialties, including cancer care and cardiovascular surgery. Retirees who are living on a fixed income will appreciate the fact that Oregon doesn't have a sales tax. Housing is tight, primarily due to demand from students and faculty at Oregon State. Single-family homes run in the $250,000 range.

The temperature in Corvallis rarely gets above the mid 80s in summer, and winters are mild. Bring your umbrella, though: Corvallis has an average of 149 rainy days a year.

Photo: Wikimedia Commons, Oakcreek

Population (metro area): 1,167,764

Unemployment rate: 7.2%

Cost-of-living index: 95.7

Median household income: $47,188

Doctors per 100,000 people: 136

Seven years after the monster hurricane and levee breaches, N'awlins has bounced back. The rebounding population has helped spawn a building boom of newly constructed and refurbished homes, as well as new infrastructure.

Retirees and people on the brink of retirement are finding a lot to like here. New Orleans has affordable health care and a mild climate (notwithstanding the occasional hurricane). The state offers tax breaks to retirees: Social Security and federal government and military retirement benefits are tax-free, and property taxes are low. Although warring gangs keep the murder rate high, burglaries and thefts track close to the national average.

Some retirees are gravitating to nearby Metairie and the north shore of Lake Pontchartrain. No matter where you live, you will still want to stroll the streets of the French Quarter. Besides jazz and blues played by gifted street musicians, you’re likely to find a festival going on. World-renowned restaurants include Galatoire's (for French Creole), Cochon (for Cajun) and Acme Oyster House (for the oysters, crawfish and po' boys).

Photo: Wikimedia Commons, Gonk

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