Getting Your Finances Ready to Retire Abroad
Gary and Victoria have worked for almost 20 years. Living in a self-owned property with no children to take care of, the couple enjoys a stable lifestyle. Victoria’s dream is to spend her retirement relaxing in a house of her own. The couple, who has Canadian residency and HK$1.5 million in current assets, is actively planning their future retirement abroad.
How much savings is enough? They have many factors to consider, including the price of property. Although they are both Canadian residents, they probably will not have a job after retirement and therefore would be unable to apply for a mortgage. They would need to save enough money to purchase a property and pay all related fees.
Additionally, medical expenses are another problem. They already have insurance for critical illnesses worth around HK$800,000 each. Canada has better medical benefits, but they would also need more coverage for critical illnesses. Should an illness strike, they should have the flexibility to choose the treatment they prefer, as well as have the capacity to deal with unexpected expenses.
Switching to a different living environment brings a different set of calculations with regard to property, cost of living and inflation. There are also necessities unique to the new country, such as driving, that they need to think about if they wish to maintain their lifestyle. A typical month’s expenditure, including a car, would roughly be HK$15,000. If Gary and Victoria wish to emigrate to Canada in 18 years’ time, and their retirement period is 25 years, they would need around HK$8.2 million in savings (not including any investment returns) – assuming a year-on-year inflation rate of 2% in Canada and the same standard of living. While Canada has better retirement benefits, the security pension is only applicable to legal Canadian residents aged 65 or above and who have lived in Canada for 10 years or more. *
Another challenge is taxation. Once you become a resident, you are liable to pay taxes. A lot of countries have complex taxation systems, and Canada is one of them. With dividend taxes, interest taxes and sales taxes, it is wise to understand the full tax burden before you decide to retire in another country.
In conclusion, whether emigrating or retiring abroad, planning is essential. Accumulating your wealth and preparing your medical insurance will help to avoid disruptions to your plan should a medical emergency happen. An ideal retirement only comes with careful groundwork beforehand.
*Source: Service Canada
Special thanks to the case study provider: Financial expert: Simon Lee (Co-Director, International Business and Chinese Enterprise (IBCE) Senior Lecturer, School of Accountancy)
|Property Value in Hong Kong:||HK$8.1 million|
|Remaining Mortgage Value:||HK$3.95 million|
|Combined Monthly Savings:||HK$17,000|
|Combined Assets Value:||HK$1.5 million|
There are many factors to think about if you are retiring abroad: