Savvy Retirement Strategies for Australian Expats in Hong Kong

Hong Kong has been home to many Australian expats over the years, and despite many departing throughout Covid-19, it is still a very popular destination, and you don’t have to look too far to understand why. From the economic opportunities and favourable tax system, to the cultural diversity and geographical advantage allowing you to travel around Asia and to the rest of the world, Hong Kong holds many benefits for Australian expats living abroad.

As an Australian expat Financial Planner working with many expats in Hong Kong and across the world, we have gathered some valuable insights over the years. It’s a unique position, balancing two financial worlds while stepping through the intricacies of living abroad and planning for retirement. So, if you’re an Australian expat in Hong Kong, this guide is for you.

Understanding the Retirement Systems

Firstly, understanding the retirement systems of both Australia and Hong Kong is crucial. Back home, we have the Superannuation, a compulsory scheme where employers contribute 10.5% of an employee’s earnings towards their retirement fund.

On the other hand, in Hong Kong, there’s the Mandatory Provident Fund (MPF), where both employers and employees contribute to the retirement fund. It’s not an apples-to-apples comparison, but understanding these fundamental differences is a stepping stone towards effective retirement planning.

How does the MPF System Work?

The MPF system covers employees and self-employed persons aged 18 to 65, with some exceptions. All employees and self-employed people, irrespective of their nationality, residency, or length of employment duration, are required to join an MPF scheme if they work in Hong Kong.

MPF contributions are invested in a range of funds, and the choice is up to the individual scheme member. MPF Schemes typically provide a range of investment funds with varying risk levels, including equity funds, bond funds, mixed assets funds, and guaranteed funds. Scheme members can choose to allocate their contributions amongst these funds based on their personal risk tolerance and investment objectives.

In terms of withdrawing funds from the MPF system, members can withdraw their accrued benefits when they reach the retirement age of 65. Under certain circumstances, early withdrawal is allowed, such as permanent departure from Hong Kong, total incapacity due to illness or disability, terminal illness, or death. It is the permanent departure that is most common amongst Australian expats in Hong Kong.

Setting Your Retirement Goals

The magic of retirement planning lies in its personalisation. There is no one-size-fits-all strategy here, and its vital to consider your own unique goals and situation. Do you envisage a quiet retirement back in Australia or an adventurous one traveling around the world? Your retirement vision will dictate your financial strategy. Don’t forget to consider factors like Hong Kong’s cost of living and potential retirement locations’ living costs.

Whilst there are many average statistics online, such as the suggestion that for a comfortable retirement in Australia, a couple requires approximately $70,500 per annum assuming that they own their own home. This figure would be more than enough for many Australian expats, or far short of what you require, hence the importance of proper planning.

The Tax Puzzle

A big piece of the expat financial puzzle is taxes. Unlike Australia’s progressive tax rate, Hong Kong operates on a territorial taxation system, taxing only income sourced within the region. It means your Australian-sourced income could remain tax-free in Hong Kong, a significant benefit when strategising your retirement planning.

Managing Your Investments

Investments can be a solid foundation for your retirement fund. However, it’s essential to keep in mind the geographical distribution of your investments. It might be tempting to invest heavily in the Hong Kong market, but remember the golden rule of investment – diversification.

Investing in different markets can help mitigate potential risks. Also, take note of currency risks. Exchange rates between the Australian Dollar and Hong Kong Dollar can impact your investments and retirement funds, especially if you plan to retire back in Australia. The Hong Kong Dollar typically tracks the US Dollar, which as we know can be quite volatile against the Australian Dollar, particularly over recent years with Monetary policy changes.

You should have a strategy in place to diversify your investments, capitalise on weakness in the Australian Dollar where possible, and build up your retirement portfolio with the end goal in mind, referring to the currency that you plan to draw your retirement income in.

Maximising Your Retirement Funds

To make the most of your retirement funds, you may want to consider contributing as much as you can afford to your superannuation and MPF, however it’s critical to assess your own situation and seek personal advice here. For the superannuation, if you’re considering returning to Australia in the future, making personal contributions can be a tax-effective strategy in some instances, whilst in others it could be more effective investing outside of super.

For example, Hong Kong does not impose taxes on dividends or capital gains. This tax policy is part of what makes Hong Kong an attractive place for investment and business, and of course for the many Australian expats who call it home. This could make it quite attractive to construct a diversified investment portfolio, even if denominated in Australian dollars, outside of your superannuation to build up your retirement savings.

Remember, any decision to transfer funds between countries should be made carefully. It’s important to evaluate the benefits and drawbacks.

Estate Planning

Even though it might seem a bit grim, estate planning is an important part of retirement planning. Make sure you have a valid will that applies in both Hong Kong and Australia. You don’t want to leave your loved ones with legal complications in an already tough time.

Health Care Considerations

Healthcare is a major consideration for retirees. Hong Kong has excellent health services, but they can be expensive without insurance. Evaluating your health care needs and ensuring you have adequate insurance is vital.

You should also have a plan in place for your private health cover in Australia. This may include pausing or suspending your private health insurance in Australia until you return, or perhaps even retaining your global cover once you’re an Australian resident again, particularly if you’re considering living and working abroad again in the future.

Professional Advice

Cross-border retirement planning is not a DIY project. It’s always wise to consult with a professional financial adviser who understands both Australian and Hong Kong systems.

And that’s where we come in. At Ally Wealth, we’re an experienced team of both Australian residents and expats, just like you. We’ve navigated these waters and have the first-hand experience to guide you through your retirement planning journey in Hong Kong. If you’re unsure about how to proceed or just need someone to discuss your options with, we’re here to help.

Conclusion

Planning your retirement as an Aussie expat in Hong Kong can feel like juggling, trying to keep multiple balls in the air. But remember, every good act in the circus starts with a solid plan and a lot of practice. So start today, understand your goals, develop your plan, and don’t hesitate to ask for help when needed.

Reach out to us at Ally Wealth for a free consultation. We’d love to help you create a retirement plan that suits your international lifestyle. Remember, retirement planning isn’t just about the destination, it’s also about the journey. And as your financial advisers, we’ll be with you every step of the way.

Ally Wealth Management is the trusted ally in finance for Australians at home and across the globe. As both Australian expats and residents, the founders of Ally have a unique understanding of the common personal financial challenges faced.

Book your complimentary appointment with our team at Ally Wealth Management to discuss how we can help you to achieve your financial goals.

Ally Wealth Management Pty Ltd is a Corporate Authorised Representative of Sentry Advice Pty Ltd ABN 77 103 642 888. Sentry Advice holds an Australian Financial Services Licence (AFSL) No. 227 748.

General Advice Warning: The information contained herein is of a general nature only and does not constitute personal advice. You should not act on any recommendation without considering your personal needs, circumstances, and objectives. We recommend you obtain professional financial advice specific to your circumstances.