The Escape Artist put a great post to translate US Financial Independence posts from the US too British, this post expands it to translate to the Australian context. Australia is historically closer to the British than the States so it makes sense to expand from his post.
- Also, ignore the healthcare stuff
- Also, ignore the travel hacks
- VTSAX => ASX.VTS
- IRA => Superannuation (Personal contributions)
- 401k => Superannuation (Employer contributions)
The maths of financial independence
Principles of financial independence of saving more than you earn and wisely investing the difference are the same everywhere in the world.
Your savings rate matters in the Southern Hemisphere too. If you live in default mode and save nothing outside of the 9.5% (superannuation requirement) of your income you will be able to retire in 52.4 years. Eak.
Safe Withdrawal Rate
4% rule also applies in the land upover, there is some conjecture if it applies here but if used as a "mental" short cut it provides a simple answer to quite a complex problem. The Ordinary Dollar has done a great series on SWR within Australia for more in depth analysis.
Like the escape artist I to find the US-centric view of only investing domestically strange. We also have the home-bias centric argument (Franking credits, Baby Boomers, anyone?). Personally, I like Vanguard Diversified Funds. You can buy them as managed funds or ETFs. There are other options, ETF watch have a good guide and index to ETFs.
Like the US and the UK, Australia has three ways to fund a pension:
- State Pension
Accessible once you turn 67. The plus side you don't have to pay into it to be entitled. However, it is asset means-tested. For most people who want to FI, they will exceed these tests and get no or limited pension. At least if everything goes to plan.
Can be accessed from 60 years old (Preservation age). This is the current target and some would like to increase it to the pension age (67 by 2024).
Many people in Australia are sceptical about this target changing, as they should. Legislation risk doesn't seem to be a concern to people in the rest of the Anglosphere.
- Personal Pensions
Your invested assets that you control and are accessible now.
To be considered FI in Australia you need at a minimum:
- Invested net worth (Superannuation + Personal Pensions) must exceed or be equal to 25 times annual spending.
- Have enough Personal Pension to last until the preservation age (60 today and possibly 67 in a decade).
Many people would like a bit of buffer. Things change and I intend to have some buffer or flexibility in case things don't go to plan.
Save for children
Like the UK, and perhaps due to HECS and its very low interest, there doesn't seem to be as much of a concern in Australia \ UK as the States.
Like the UK we have high houses prices and like the US we have space. There are geo-arbitrage options in Australia but generally it means moving inland. So moving from a city to a regional town. From what I can tell that isn't attractive to many Australians. So the options are remote coastal or perhaps Tasmania.
From what I can tell, the most attractive option is an outer suburb of a major city.
Australia is more like the UK in this instance. Most affordable places require a car. I completely agree with The Escape Arts that cars costs are insane and it’s certainly more pleasurable to walk than to be stuck driving. But you have to work with what you have.
The compromise is perhaps a small regional town in Australia. Walkable and cheap(er) property prices.
This is where Australia might have it over both the UK and the US. Our food is excellent and can be low cost. There is plenty of options from farmers markets, supermarkets, grocers, butchers, European low-cost supermarkets (Aldi) and American bulk supermarkets (Costco). For groceries are spoilt for choice.
Another difference here is just the amazing options for eating out. Eating out (brunch) is the new sport or hobby here in Australia and it can be expensive if you do it all the time.
Schools and University
Private education in Australia is also a big deal. The reality is that it's expensive and unless you're wealthy or intend to work right up to old age you are going to have to skip it. There are alternatives such as Catholic education and many people also look to buy into neighbourhoods with "good" public school zones.
For university, there is HECs. A wonderful system that the kids will have to live with the consequences of in a kind of gentle way, low-interest rate and middle-income payment hurdles.
Similar to the UK our Medicare system is world-class, ranked second-best in the world after the UK. Sure you can pay for private health and there are some tax incentives for you if you do. Again The Escape Artists advice of focusing on your own health and lifestyle choices seems wise to me and applies the world over.
Consumerism is also a powerful force in Australia. To achieve independence here you must overcome it. Typically people think of shopping and consumerism but increasingly I think this is a narrow definition and it should be expanded to any status elevating purchases:
- Private School
- Investments (yes - especially property)
- Kids Activities
- Restaurants, events etc
Marketers are smart and they know we are spending less on buying “things”. They are marketing status and "unconventional" products to us more and more.
We ALSO can do it
If there is one thing Australiaians appears to agree on is the importance of work, a strark contrast to our image as "laid back". Having worked overseas, Australia for a Western country takes work very seriously and its hardly relaxed.
In particular, Australia treats the unemployed in a particularly harsh way. Even if you don't want to retire early these Newstart stories should give you the motivation to save an some cash and avoid going on unemployment in Australia which incidentally is the least generous in the world and perhaps the most harsh.
The system is generally structured around increasing work and your time in it. We have very high progressive tax rates, high-cost housing, privised education, low financial education, extreme gambling and a high cost of living. All of these cultural, legislative and financial elements can make Financial Independence more difficult in Australia than elsewhere.
Unlike the UK we have no aristocracy. Nor do we have a class known for their leisure. The rich in Australia keep trying to build their nest and don't really seem to try to make the country or Australia a better place . Of the leisure class, we have retirees which appear to have a special status, unlike those nasty bludgers on the dole (unemployed - from which this blog takes its name).
Australians aren't suspicious of wealth, we are suspicious of the non-working. Yet financial independence doesn't mean you stop working, it just means you’re free to work on what you value just like that rich list. You can decide to build a bigger pile or do something else but what's cool is that it really is possible for a lot more (not everyone) than they think.