Rewriting the FI script
The FI Community follows a guideline, but it should be used more as a reference. It shouldn’t be used as strict instructions. Personal Finances are personal. Everyone’s personal finances are unique. Whether it’s the 9 Financial Order of Operation (FOO) from Money Guy, or the 7 Baby Steps from Dave Ramsey, it can be used for reference. Same goes for FI. I believe that calculating the FIRE number and the 4% safety withdrawal rule can be used for reference, but not as an instruction or a guide. My money scripts have evolved over time, and now I would need to change the FI script more aligned to our financial goals.
We’re nomads as dual US and AU citizens, so following a strict FI guideline isn’t applicable due to their tax residency implications. FI in the US focuses heavily on the stock market, and AU focuses heavily on property investing (PI). However, both countries are concentrating in one asset. Our approach will be creating a diversified portfolio, investing in both stocks and property, when accumulating our wealth.
We’ve liquidated our 401K and Roth accounts prior to becoming AU permanent residents as we’ll be subject to tax implications. As for Superannuation, it’s tax free during retirement age. Even though 401K is pre-tax, and Superannuation is taxed at 15%, tax free withdrawals during retirement age is more essential. We’re also eligible to receive Social Security benefits from the US as we’ve acquired the required working credits under SSA Payments Abroad. For our Financial Planning purposes, we will not be including social security from the US as nothing is ever guaranteed when it comes to government payments. We’ll continue to file our US taxes utilizing foreign tax credits (FTC), and FBAR requirements.
We’re not eligible to receive age pension from AU due to our asset test, however, we can opt in for account based pension (ABP) from our Super. Assuming that Kathy has retired, her taxable earnings would be 0. We can utilize our taxable investment accounts and DCA sell in lots with 50% discount through LTCG. However, it doesn’t seem like the ATO marginal tax rates are indexed to inflation as it’s still capped at 18.2K at 0%. Instead, I can use my own taxable investments, and we can utilized 18.2Kx2=36.4K tax free. Super withdrawals is tax free in AU. Any taxes owed to the US will be offset with our FTC. US Social Security is not taxed in Australia due to the US-AU tax treaty preventing double taxation. Rental income through property investing will be offset with our FTC.
