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Returning expats seeking advice.

Including Financial Independence and Retiring Early (FIRE)
sloth
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Returning expats seeking advice.

#242598

Postby sloth » August 8th, 2019, 7:39 am

First post, and not sure if this is the correct forum.

My wife and I emigrated to Australia 15 years ago fully intending to stay, but an unexpected change in circumstances means that there's a 90% chance we will be returning to the UK in 3-4 years.

Our retirement planning has been focussed on staying in Australia so I'm now trying to see how the move back might pan out financially.

To move back, we'd liquidate all our savings/superannuation, sell our house and transfer the cash back to start afresh.

I estimate that after buying a house, we'd have around £1.1m to invest/provide an income based on today's exchange rate.

Around the time we expect to arrive back, my state pension will kick in, but as my contribution record is a bit patchy, it will only provide around £6500pa.

The other UK-based asset that we have is a SIPP containing approx £80k which is the result of a long-lost pension from the early 90s which I only became aware of a year or so ago.

From this distance it's difficult to guesstimate what would be a reasonable income for us, and after looking at several "how much you will need in retirement" articles I'm not much wiser, so for argument's sake I'm going to pick £30k pa in year 1, plus my state pension (my wife's contribution record is worse than mine, and will still be several years away when we come back so I'm ignoring it). I think a reasonable time-frame for this is for the next 30 years as my wife is a few years younger than I am.

There is no requirement for the initial capital to be left intact, but I'm inclined to be cautious and not aim for zero at the 30-year point.

Several posters have made the point that it's good to keep 2 years' living expenses in cash so that's one of the things I'm aware of.

Now is the part I'd like a little advice on. I've done some reading around this, both on this forum and a couple of others, and Luniversal's basket of seven gets several mentions, and others seem to manage with two or three global tracker funds-from my point of view simpler is better. How about approaches like AJ Bell's ready made portfolios?

What other strategies should I be considering?

If it's easier for anybody to offer advice, let's assume this is happening in the next few months. Who knows what 4 years hence will look like?

Alaric
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Re: Returning expats seeking advice.

#242640

Postby Alaric » August 8th, 2019, 9:55 am

sloth wrote:
To move back, we'd liquidate all our savings/superannuation,


I'm aware that superannuation is "Australian" for pensions. Is it tax advantageous or even possible to transfer those funds into a SIPP?

jonesa1
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Re: Returning expats seeking advice.

#242735

Postby jonesa1 » August 8th, 2019, 2:07 pm

There are lots of potential strategies, e.g.:

- focus on natural yield using income paying investment trusts (or funds, if held on a low cost platform). I'd be more inclined to lower the UK and increase the non-UK allocations compared to the baskets of 7 or 8. You could go for all income focused trusts, or a mix of income focused and growth oriented trusts (long term income growth of the portfolio is likely to depend on capital growth). It is an option to diversify away from general exchange traded equities and include ITs specialising in commercial property, infrastructure, private equity, etc. Maybe also include some low volatility assets (such as Capital Gearing Trust or short-dated government bonds via an ETF) in case you need to access capital at a time of low asset values).

- focus on asset allocation and total return, rather than dividend income. You could do this with active or passive investments, periodically rebalancing between the asset classes (sell some, buy some), including the pot of cash you use for income. This could be as simple as a low cost global equity tracker, a UK government bond tracker and a pot of cash. Over the long term there's no guarantee than any particular active investments will out-perform the market and many under-perform, index trackers pretty much guarantee a return slightly below the market. There's also the perspective that over the long term, asset allocation is generally more important that how a particular asset class is invested.

- it's also an option to look at spending some of the money on an index-linked annuity to ensure you always have enough income to cover the basics, so that income from other investments can be reduced if necessary (e.g. whole-sale collapse in asset values). The more risk averse you feel, the more likely this is to be a reasonable option.

I'd suggest you do a lot of reading around the subject. This site is a good source of info and a good place to test your thinking by inviting people to give you a contrary view. Monevator has plenty of food for thought, the forums at Citywire are quite active as well. Money Observer has a number of reference portfolios (some just ITs, others a mix of ITs & funds, some designed for growth, others for income) which could give you ideas. It could be worth going with a ready made portfolio from AJ Bell (or other brokers / wealth managers) if you're comfortable with the asset mix and the charges, the AJ Bell portfolios use funds, which makes the platform charges more expensive than they would be for ITs or ETFs (these are capped by AJ Bell at £30 pa for an ISA / trading account or £100 pa for a SIPP), but dealing costs are lower.

The key is to work out an approach that you're comfortable with and to remember that no-one has the one true answer and no-one knows how closely the future for asset values will follow what's happened previously. In your position, I'd feel reasonably confident about being able to take £30k (increasing with inflation) income from a pot of >£1M, so long as you're not tied into an expensive ongoing relationship with an IFA and / or wealth manager. It could be an option to take paid advice from an IFA about initial asset allocation, finding one with the right skill set and prepared to do that without the ongoing income may be a challenge.

Andrew

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Re: Returning expats seeking advice.

#242747

Postby PhaseThree » August 8th, 2019, 2:35 pm

As you have identified holes in your National Insurance record I would recommend looking at paying class-3 voluntary contributions to fill the gaps to target a full state pension for both you and your wife. This gives you a near guaranteed income and a near zero risk return on investments that you are unlikely to find elsewhere.

TheRIT
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Re: Returning expats seeking advice.

#242753

Postby TheRIT » August 8th, 2019, 2:49 pm

Firstly, not an expert so DYOR, this is not advice etc...

I do not believe you are allowed to transfer Australian Superannuation anywhere but to another Superannuation fund so I don't think you'll be able to get it into a UK SIPP.

Be careful around Capital Gains Tax:
- When you entered Australia it's likely you were able to uprate all your asset values to the date of Aus residency which is advantageous in 'setting yourself up' but it works in reverse as well. When you leave you're going to have to make an election of whether you want to pay CGT on the growth of all assets since becoming a resident or whether you want to defer it for when you return. If you never intend to go back it's a no brainer but if you're unsure then it's going to take some careful thought.
- If you liquidate while an Australian resident, as they don't have ISA's etc, you're likely looking at a pretty hefty Aus CGT bill. Wait until you're resident of the UK and they'll hit you with a big UK CGT bill.
- Also if you wait until you're back in the UK it's unlikely that any assets in funds etc will be distributing/reporting funds which adds another complexity as it's my understanding you don't get to use the annual CGT allowance on those as gains are taxed as income.

You have a significant sum in my world and so I'd really recommend you find an accountant who understands UK tax, Aus tax and importantly the double taxation agreement between them. At the very least I'd guess you'd want them to write you a document that explains the whole story for your particular assets and plan so you can make an informed DIY decision. This might involve you starting the money plan now even though you won't be emigrating for a few years.

When you hit the UK ground the problem you'll have is that most of what you have (assuming most is not in Super) will bear the full brunt of UK taxation. So you'll be wanting to maximise ISA contributions for both your wife and your good self if you ever want to eventually lower your tax bill or even remove you from altogether. Also you'll want to be sharing the wealth, meaning sharing the income, as tax efficiently as possible if you do liquidate and transfer to the UK. So given you have a £6.5k pension you might want to give your partner a bigger portion of that £30k per annum income.

Personally I've just retired at age 46 (£1.3M of assets but I need to buy a house within that) so am a long way from state pension etc. Personally, I've settled on a 2.5% (+investment expenses of about 0.2%) maximum withdrawal rate uprated for inflation annually or 85% of the dividends the portfolio produces whichever is the lesser. 2.5% of £1.1M is £27.5k so not to far from your £30k in year 1.

When I back tested how dividends (using US data as UK data is scant) from equities were impacted during historic bad bear markets I settled on 3 years of spending in cash. Also when you're thinking about it you need to think about how you'll live your life during those bad bear markets which will make you think whether that's x years of bare bones spending vs 'normal' spending vs 'something in between'. I know in my case a lot of my spending will be discretionary going forwards and it makes a big difference as that cash is 'guaranteed' to lose purchasing power with time where if it was invested in higher 'risk' assets it might give you some growth in purchasing power.

My portfolio is predominantly built from low cost index tracking ETF/C's/UK REIT's covering UK equities, developed market equities, emerging market equities, gold, property, corporate bonds and index linked gilts. Since 2007 that's given me a real after inflation return of 3.9% after expenses and withholding taxes. Given this level of return I'm so careful about minimising expenses when I think that expenses of 1% (say circa 0.8% for your AJBell ready made portfolio + 0.25% for the ISA/SIPP wrapper it's placed in) could be taking 25% of your return. In comparison my total investment expenses for my whole portfolio are currently 0.21%.

Importantly approximating and then backtesting my portfolio (again with US data so likely to be bullish) against historic sequence of returns and the portfolio survives. Of course history is not an indication of the future etc. I'm just hoping that the future at least rhymes with the past...

Hope that helps and just reconfirming not advice and you;ll need to DYOR as I'm just a random bloke in the internet.

Dod101
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Re: Returning expats seeking advice.

#242758

Postby Dod101 » August 8th, 2019, 3:03 pm

The first thing to say is prepare for a culture shock! The second is that for your purposes I would think that your £30,000 per year living expenses may be a bit on the low side. I would make that £40,000 and if it is less so much the better. I second the suggestion of trying to pay in the 'lost years' in your State pension, for at least one of you and both if possible.

The 'natural' yield on your £1.1 million should well exceed 4% at the moment, and I would certainly be reading the HYP Boards on this site, not necessarily going hook line and sinker there but to get an idea and a flavour for income investing. It will probably be that, if you want to keep the investing bit simple, you would be better with a portfolio of income investment trusts, but I would be inclined to mix it. You will of course be caught for tax once you are tax resident in the UK and with not a lot of options that I know of to mitigate that at least in the short term. I was abroad for most of my working life, returning to the UK in 1991 and even now I do not have all my investments tax sheltered in an ISA or a SIPP, but I am well on the way.

You may like to take some advice on asset allocation on your return (and tax advice per TheRIT), because I would not imagine you would be too happy about exposing everything to the stock market and then see it fall by 25%. It happens. I have about 10% of my free assets in cash or equivalent. I live off my dividends so I think I am fairly conservative. Some may not think so because the rest is in the stock market, split between individual shares and investment trusts.

Good luck to you however you play it. These Boards should hopefully give you some good ideas.

Dod

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Re: Returning expats seeking advice.

#242771

Postby fca2019 » August 8th, 2019, 3:44 pm

Yes I like the ready made portfolio approach as well, saves rebalancing. You pay for their management, but fees are low anyway.

I've got holdings in AJ Bell Passive Balanced, and more recently in Vanguard LifeStrategy 60. Both accumulation funds 60% equity:40% bonds. I believe the Vanguard one is cheaper.

Its worth researching platform charges and fund charges to make sure they are low. £30k p.a. if enough for most people outside of London/South East. Your plan sounds good to me, and best of luck!

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Re: Returning expats seeking advice.

#242919

Postby Hariseldon58 » August 9th, 2019, 8:34 am

I’d second the excellent advice from TheRIT Re tax advice and investing etc.

Given you have 3 or 4 years notice, subject to tax advice would you be able to start the process of buying UK listed investments now ?

It eases the big question of market timing from Aus $ to £.

The £30k pa sounds about right for an after tax income, but clearly that’s a very personal judgement. Those of us who are long term residents and living off investment income will probably have taken advantage of ISA’s and SIPPs which can allow a pretty good income and paying minimal income.

Using a diverse portfolio of ETF trackers, limited Investment Trusts and property I have an income of 2.9%, over the 12 years of my early retirement I have made the equivalent of annualised capital growth of 7+% as well.

So that has kept up with inflation easily but I ‘retired’ into the GFC... having a couple of years living costs could be seen as very sensible! I found dividend income kept up well and significant falls in capital values are unpleasant, consider your attitude to heavy market falls....recovery is not guaranteed!

I do not think my 12 years of 10%+ returns spanning the financial crisis is likely to continue....

Good luck, with 3 or 4 years to plan and mull it over there is a great chance of it working out.

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Re: Returning expats seeking advice.

#242934

Postby Alaric » August 9th, 2019, 9:07 am

Hariseldon58 wrote:The £30k pa sounds about right for an after tax income, but clearly that’s a very personal judgement.


Would that be before or after housing costs? Most posters to this site are likely to be writing from a mortgage or rent free perspective.

Dod101
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Re: Returning expats seeking advice.

#242998

Postby Dod101 » August 9th, 2019, 11:33 am

I now live on my own in a very nice semi rural bit of central Scotland just north of the central belt (the Edinburgh/Glasgow corridor) I can live comfortably on around £30,000 per annum, including running a now 3 year old Q5 and giving fairly generously to grand children, and am of course mortgage free. However, I had to spend about £5,000 on roof maintenance last summer and this year redecoration to the exterior of my house. These 'one off' expenditures tend to be forgotten and the OP sounds as though he has a wife. I think in these circumstances, £30,000 even after tax sounds a bit low. My figures are before travelling and I spend about £5,000 on an overseas trip once a year. My figures do though include travel in the UK.

It is a very personal choice but I would urge the OP to use a slightly higher figure. With his assets, he should be able to anyway, so there is no cause for alarm.

Dod

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Re: Returning expats seeking advice.

#243086

Postby TahiPanasDua » August 9th, 2019, 4:24 pm

Two years ago, my wife and I returned to our native, and very economic, Clackmannanshire after 42 years as expats.

Last year we spent almost 50,000, a significant discount on our expenditure when retired in Hong Kong. This figure is all inclusive; tax payments, holidays, property maintenance, the lot. As you might expect, we have no mortgage. We don't consciously budget but live reasonably modestly (whatever that means). You would probably have no need to spend the 10% of the 50K we disburse to needy relatives.

A piece of advice I would give is to make sure that all bank accounts, property and investments are in joint names. It is simple to administer, doubles tax allowances and keeps more income within the lower tax bands. Inheritance by the surviving partner is then also a cinch.

We pay relatively little tax as most income is from dividends. Dividend tax is a lot less than the income tax rates payable on pensions such as my wife's civil service pension.

TP2.

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Re: Returning expats seeking advice.

#243131

Postby monabri » August 9th, 2019, 7:20 pm

There are people living on a lot less than 30k pa. My mother used to get by on 13k per year (state pension and mobility allowance).
She lived in the NW of England but had enough money to run her car and go on holiday at least once per year to Spain or somewhere in the UK. She lived on her own but two can live (nearly) as cheap ad one, they say. She also managed to save money into her cash ISA!

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Re: Returning expats seeking advice.

#243177

Postby TahiPanasDua » August 10th, 2019, 5:43 am

monabri wrote:There are people living on a lot less than 30k pa. My mother used to get by on 13k per year (state pension and mobility allowance).


Absolutely, and despite having quoted personal annual expenditure of around 45K, I wonder just how helpful to anyone that figure really is.

The amount of retirement or regular income we end up with is not a free choice and humans are very adaptable. My sister, like so many, survives on only the state pension and seems to manage OK. At the other extreme, I read recently that a huge proportion of lottery winners end up broke.

I get the impression that, for many people, any increase in income merely establishes a new perceived minimum for survival.

In conclusion, I have no idea how to advise the OP.

TP2.

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Re: Returning expats seeking advice.

#243363

Postby sloth » August 10th, 2019, 5:20 pm

Alaric wrote:
sloth wrote:
To move back, we'd liquidate all our savings/superannuation,


I'm aware that superannuation is "Australian" for pensions. Is it tax advantageous or even possible to transfer those funds into a SIPP?


Isn't the benefit of a SIPP based on UK earnings and the tax relief on that paying in?

I don't think paying in from our after-tax money would be beneficial. Am I right, or should I be thinking about this?

Alaric
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Re: Returning expats seeking advice.

#243373

Postby Alaric » August 10th, 2019, 5:48 pm

sloth wrote:
I don't think paying in from our after-tax money would be beneficial. Am I right, or should I be thinking about this?


The suggested idea was that you make a transfer of the Australian scheme on a scheme to scheme basis. Subsequent Google research suggests that whilst you may be able to transfer UK pension money to Australia, the reverse isn't true. In fact international transfers out from Australia appear forbidden except to New Zealand.

Presumably though you can cash the Superannuation. Are there significant tax penalties to taking all in one lump?

Even if retired, a UK resident can put up to £ 2880 a year (£ 3600 gross) into a SIPP. Not an enormous sum when talking hundreds of thousands of assets.

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Re: Returning expats seeking advice.

#243380

Postby Dod101 » August 10th, 2019, 6:44 pm

I think for someone who is retired there is surely little benefit on the face of it in setting up a SIPP but I am rather out of touch.

My comment about how much after tax income one needs is based on my own expenditure. I live a fairly modest lifestyle although I must say I have a rather expensive house where I have an oil fired boiler because we have no gas. I could undoubtedly save money were I to go down the renewables route, but of course that has a capital cost. So I think for budgeting purposes it would make sense to think of more like £35/40,000 per annum net, or I could be persuaded to say £3,000 per month. I know that may sound a lot to some but I think it would be a reasonable figure to use for a budget and if it works out less than that so much the better.

Dod

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Re: Returning expats seeking advice.

#243440

Postby EthicsGradient » August 10th, 2019, 10:54 pm

Since you're both 'several years away' from retirement (your wife more so), it would seem worth making voluntary NI contributions to get what you can from your state pensions, as others have said (I'd assume you can't do this until you're back resident in the UK, but wouldn't know). And since it sounds like that still won't be a full pension for either, and you don't have private pensions providing another income, then investing what you can of your lump sum, each, in SIPPs seems like a good idea - you'll get basic tax relief on it as you put money in (£2880 each per year, before the tax relief), and won't reach the personal allowance when you do start drawing it down, so it'll be tax free, if you're careful. It won't be a huge amount extra (£1440 between you each year you're paying in), but it's still something.

Each moving as much as you can each year into an ISA (£20,000 at the moment) also then shelters further growth and income from that from tax.

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Re: Returning expats seeking advice.

#243458

Postby sloth » August 11th, 2019, 1:33 am

Many thanks to all who have replied so far-there are a few things already that I hadn't considered, and a couple of misconceptions that I had have been cleared up.

sloth
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Re: Returning expats seeking advice.

#245337

Postby sloth » August 19th, 2019, 4:06 am

Alaric wrote:Presumably though you can cash the Superannuation. Are there significant tax penalties to taking all in one lump?

No penalties provided A) you have reached your preservation age B) turned 60 and C) stated your intention to retire.

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Re: Returning expats seeking advice.

#249421

Postby DiamondEcho » September 4th, 2019, 10:26 pm

I'm late to the topic. But I last expatted for 10yrs, after 25yrs on/off in total, before returning to the UK, and can caution you for a major shock; it's never going to be the place you knew and anticipate returning to. 'Coming home' seems to require multiple times the adjustment to leaving in the first place - ironic really. I suspect the expat goes out with less pre-conceptions as to the destination than one tends to return with.

Perhaps one for the Expats board?


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