Retirement can be a time of great lifestyle change. We speak to retirees considering a lifestyle by the sea, in an inner-city apartment and overseas.
The city apartment dwellers: Judi and Jeff Parry
Judi, 66, and Jeff Perry, 72, just moved into a new home in Carlton, Melbourne.
The retirement community features architecturally designed apartments with shared spaces and community amenities, including a rooftop terrace and piano bar. The property is three kilometres from the centre of Melbourne. The couple often catch public transport, though both still drive. "We love this area, and frequent Lygon Street in Carlton and local cinemas," Judi says.
Their new apartment is just six blocks from their large three-storey converted warehouse, which they recently sold. The warehouse was too big for the couple since their adult children have left home. Both now live overseas. "We raised our family in the warehouse, but the stairs weren't going to get any easier over the coming years, so we made the decision to move," Judi says. "We wanted to be on one level."
Jeff still works part-time as a food technology consultant while Judi is retired.
While the couple will have the emotional support of their grown children in their old age, given both live overseas they felt they needed to find a way to be self-sufficient. They plan to move to the nearby Australian Unity Rathdowne Place Aged Care Facility when they can no longer manage at home.
What the expert says: Michael Abrahamsson, Flinders Wealth
As Judi is retired and Jeff is nearing retirement, the key question is how long will their money last? This will be determined by their savings and expenses. Most Australians retire with inadequate savings, with the average superannuation balance for people in their early 60s being a little more than $200,000.
When considering an aged care facility, they should investigate the facility and amenities to make sure it suits their lifestyle. Judi and Jeff should have a good understanding of the contract including entry costs, ongoing fees and exit costs before signing.
Judi and Jeff may look to structure their financial affairs to take advantage of the generous benefits available to retirees, including superannuation, pension income streams and investments providing tax effective income. This may save them tax, bolster their retirement savings and provide the best probability to achieve their desired lifestyle.
The government benefits available to retirees include the age pension and concession cards. It would be worthwhile for Judi and Jeff to find out if they qualify for a card as they'd receive discounts on medicines, utility bills, rates and car registration.
The sea-changers: Colin and Michelle Bodie
Colin, 72, and Michelle Bodie, 54, have just sold their home near Narre Warren, Victoria, for $1.1 million and bought off the plans in a retirement estate on the Mornington Peninsula, at Bittern, for $400,000.
"We sought financial advice," Colin says. "We were cash poor and asset rich. The house and garden was getting too much for us anyway, so we sold."
While the couple will have to get rid of a lot of furniture, they're looking forward to some trips away in the caravan.
A huge part of the appeal is having neighbours and a golf club nearby. "The government is fair to people like us, by allowing us to put money into super. They don't dis-encourage us to downsize," Colin says.
Construction on their new home starts in a month, and will be finished in April 2018. The empty nesters have six children between them.
What the expert says: Nathan Lear, director, Hewison Private Wealth
The Bodies could consider investing the leftover funds of about $700,000 to generate income to help fund retirement. For example, $700,000 earning income of 5 per cent could generate income of $35,000 a year.
They could also consider contributing the funds to superannuation. This could provide a tax benefit with superannuation being a concessionally taxed environment. A new budget measure announced in May could possibly see Colin contribute $300,000 irrespective of his age and contribution caps. Michelle, being under 65, has much more flexibility with regards to making contributions and under the new contribution caps from July 1, 2017, could make non-concessional contributions of $100,000 a financial year or $300,000 by bringing forward two additional years.
No capital gains tax would be payable on the sale of Narre Warren given it is their principal place of residence. If they contribute to superannuation, earnings would either be tax free or concessionally taxed. If they invest change over funds in their personal names, it may possibly result in personal income tax being incurred over time.
The principal place of residence is exempt from the asset test for the age pension, therefore by downsizing their property it may result in them either reducing their age pension entitlement or losing it altogether.
The overseas retirees: Nando and Jo Farello
The loss of both parents just four weeks apart prompted Nando Farello, 57, and his wife Jo to rethink their hectic life in Melbourne.
It was 2013, and both been working long hours for the public service. "Life is too short, so we made a huge decision. We were so caught up with everyday working, and all of a sudden we wondered what we were doing it all for."
The couple saw a financial adviser and crunched the numbers, realising it was far cheaper to live overseas than to stay in Melbourne.
So 18 months ago, they sold their East Keilor home and bought a townhouse in a gated community at Lagoon Park, Phuket. They were familiar with the area, having holidayed there annually for the past 14 years.
Their new home is next to one of the best golf courses in Thailand and Nando plays golf there regularly. A budget of $2000 a month covers all expenses.
"We're not living on bowls of noodles here, we're living an incredible lifestyle and eating out with friends," Jo says. "We didn't want to wait until our 60s to retire, that didn't work for us. We've found a whole new way of life over here and built a huge circle of expats and friends from around the world."
What the expert says: Paul Zobonos, director, Manifest Financial Wealth
Several factors need to be considered when deciding where to retire overseas. For instance, the ability to support yourself through your own funds, existing family ties and your state of health will determine whether you're able to secure a permanent visa.
You need to make sure you have sufficient funds from downsizing the family home in Australia and have access to your superannuation funds to ensure that you can support yourself in retirement. In this case, Nando will be able to access his super as he's reached his preservation age and retired, whereas Jo can't access her super until she's 57.
Leaving Australia will most likely mean that the couple will become "foreign residents" for tax purposes, even though they're Australian citizens. This means that withholding tax of 10 per cent will apply to interest earned on Australian bank accounts and 15 per cent tax on unfranked dividends from shares.
Australia's tax treaty with Thailand will ensure that the Farellos' income from their super funds isn't "double taxed". If the Farellos had a self-managed super fund, they would need to restructure the fund to ensure it doesn't lose its complying status because heavy penalties apply.
The Farellos won't be eligible for the age pension until they reach age 67, and then they will be assessed on the level of assets and income they have between them. They can be paid the age pension while they are living overseas, but would need to return to Australia to apply and remain in Australia for at least two years.