This article describes how a relatively asset-rich but income-poor retiree in Australia, especially one from Sydney, can attain a comfortable life in Malaysia.
It's often been reported in Aussie newpapers that many retired Aussies are finding it hard to cope with the high cost of living in the major Aussie cities, especially if they rely heavily on their meager state pensions. The so-called Age pension for a married couple goes up to A$500pm, excluding rent assistance - this is an extremely low for anyone to live on, especially in Sydney. My feeling is that a very basic cost of living for a retired Sydney couple would cost some A$2000 (MYR 6k) per month, excluding house rental but including eating out once a week at a medium-price restaurant.
In order to supplement their retirement income, some people have resorted to taking up reverse mortgages i.e. borrowing cash using their homes as collateral, thereby using up the equity in their homes to achieve a more comfortable lifestyle. The problem with this approach is that the borrowed money & the accrued interest charges keeps growing exponentially until the borrower ends up with increasingly smaller equities in their own home & there is little left over to cover the major medical expenses expected in most people's terminal years, not to mention little residual value left in their homes for their next-of-kin.
I think that very few Aussie retirees are sufficiently familiar with living conditions in their neighboring Asian countries to be able to properly assess the possibility of living their retirement years in a low-cost country like Malaysia using the equity in their own homes. For example, how many people realise that the basic monthly cost of MYR6k/month described above is in fact a very comfortable budget for living in Malaysia. This applies to living in KL & is definitely more than generous a couple living in other cheaper locations. Extending this argument further, this budget borders on luxurious living for other cheaper countries such as Thailand or Cambodia.
Besides the disparity in the cost of living between Australia & other Asian countries, there is also the big gap in house prices. For example, a typical 3-bedroom unit (1200 sq ft) in Sydney would typically cost between A$600k & 800k (MYR 1.8-2.4 million) whilst the same unit in KL would cost a third of that! This means that if a retiree who fully owns a $800k unit could cash out & swop it for a very similar one in Malaysia, leaving a net cash balance of MYR 1.6 million (AUD 500k). The latter could earn AUD 32.5k pa @ 6.5% in a 1-year term deposit. This amounts to MYR 104k pa or 8.6k /month, which amounts to a fairly comfortable budget for living expenses in Malaysia, especially away from the capital cit, Kuala Lumpur.
Alternatively, one could invest in Malaysian REIT's (Real Estate Investment Trusts) which are basically property trusts. They are traded on the Bursa (Malaysian Sstock exchange) & typically invest in commercial property, distributing nearly all of their net rental income to their shareholders in the form of quarterly or semi-annual dividends. The REIT prices are a lot more stable than ordinary shares & far less risky than those in developed countries because they are legally forbidden from participating in property development projects ang have very strict gearing (borrowing) limits. The latter two factors were the primary causes for the major losses suffered by many property trusts in developed countries during the last Global Financial Crises.
Malaysian REIT's can be purchased in the same manner as ordinary stocks & shares by opening a trading account with any one of the Malaysian stock broking firms, many of which are associated with major banks. Examples include the broking arms of Maybank, CIMB, Public & Hong Leong Bank. The commissions charged by brokers range from a high of 0.7% (for phone orders done through their sales reps known as remisiers) to less than 0.05% for internet trades. Besides broker's commissions, other transaction costs amount to ca. 0.13% of transaction value. Bursa Malaysia is totally scripless i.e. owners are credited with a share holding account with the Bursa Depository, the cost of which is included in the 0.13% mentioned above.
Live stock prices are provided at no cost by the major broking firms who also provide their clients with free analyst reports. The Bursa website also has one section where many free analyst reports are provided for free.
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