Retirement Income Passport: Retirement Portfolios From Around The World
Ever wonder what a retiree in Australia, Canada, Singapore, or other distant locations invests in? Curious as to how much they invest in US companies, or what financial advisors helping retirees in other countries see as some of the best, most underutilised opportunities?
Join me as we examine what’s similar and different about retirement portfolios from around the world.
Starting with the land down under, financial advisor Brett Evans with Atlas Wealth Management in Southport, Australia identifies several key differences between an American and an Australian retirement portfolio. “Australia equities generally pay a relatively higher yield,” he said. “For example, the top 200 listed companies on the Australian Stock Exchange pay an average yield of 4.35% as opposed to the approximately 1.94% average yield of the S&P500.”
He adds that some of their retirement terms are different, noting that Aussies refer to pensions as superannuation and that most retirees have pensions as well as tax deferred money that they can access as early as age 55 depending on their date of birth.
When it comes to building an actual retirement portfolio he said, “Here in Australia retirees tend to prefer investing in direct equities because of their relatively high yield, liquidity and ease of understanding. They often have 5-20% invested in US based companies, typically using ETFs which are rapidly growing in popularity in my country.”
When asked about possible investment opportunities in Australia that US based advisors and retirees may not be aware of he mentioned BHP Billiton, Amcor, Australia and New Zealand Bank, CSL, and Westpac, all of which are well-known dividend paying companies in his country.
Moving on to hustling, bustling Singapore, Andrea Kennedy, Chief Strategist at Wiser Wealth said, “Singaporeans have more real assets in property investments and income earning business interests than the average American retiree.”
She went on to say that, “Investing in property is very much part of the local culture. A typical retiree would have 50-75% of their wealth in property, followed by 10-20% allocated to the mandatory retirement fund Central Provident Fund (CPF). Annuities, including whole life insurance, can also make up another 10-25% depending on the person.”
Somewhat surprisingly, she also mentioned that, “An ‘American style’ portfolio of 50-50 stocks and bonds is relatively unusual unless held through insurance linked policies. Singaporean investors’ portfolios tend to be geared toward holding income producing assets such as REITs. Only investors with a net worth above $2 million can invest in ETFs because of local restrictions on investing, which accounts for heavy ownership of insurance contracts.”
When asked for an inside scoop, she shared the opinion that advisors and retirees in the US are less aware of the opportunities in Singapore, including those with well-known companies that include Starhub, Singtel, Keppel and a slew of REITs that pay regular dividends over 5%.
In addition to her Asian clients, Kennedy works with a handful of German clients who tend to be Eurocentric. They usually will have a 50/50 stock/bond portfolio, but they tend to focus on emerging market investments with a bit of exposure to Europe. Germans investors do not have much interest in the US. “They tend to own a flat in Europe,” she said, “and are also likely to buy a property in Asia as a long-term investment.” She suggests that, overall, German clients generally have 50% or more of their assets in property, less than 25% in financial markets, and about 25% in cash.
She points out that, “No one is as oriented toward financial markets as Americans because, in the US, the system orients us to tax-deferral strategies, to the benefit of Wall Street no doubt. Most Europeans get a government pension or a healthy company pension, which boosts their retirement income. Most Europeans do not need to save a bomb for college or healthcare, giving them much more disposable investment cash than the average American.”
Closer to home, Alexa Bodel, a financial advisor with Chalten Fee-Only Advisors Ltd. in Vancouver, Canada, said that the main difference between US and Canadian portfolios is the large overweight in Canadian securities, which represent only a small percentage of the global financial market (approximately 4%) and are concentrated in a handful of sectors (i.e. Financials, Energy, and Materials).
The Canadian retirement terms and investment vehicles differ from those in the US in that they refer to IRA-type tax-deferred accounts as RRSPs (Registered Retirement Savings Plans) and when retirees turns 71 they must choose to withdraw the funds and pay taxes on it, convert the funds to a RRIF (Registered Retirement Income Fund), or convert the funds to a life annuity.
Canadians also have access to a tax free savings account (TFSA), which is similar to the Roth IRA here in the US. “However,” Bodel said, “the TFSA is far more flexible than the Roth IRA because there are no income-based eligibility rules regarding contributions and you can withdraw (and later replace) funds tax- and penalty-free at any time… not to mention that Canadians can continue to contribute to a TFSA during retirement.”
Of particular interest was some Canadians’ preferred level of international exposure. “We try to encourage clients to move out of the concentration in Canadian holdings and a retiree we work with would hold as much as 66 % of their equity exposure in international investments, including 33% in the United States and 33% in the rest of the world,” she said.
Whether you plan to travel as part of your retirement plan or not, you can now say you’ve had your portfolio stamped with insights from Australia, Singapore, Germany, and Canada.
This article originally appeared in a interview with Forbes Magazine.