Rate cuts mean life could be better on the pension
The Reserve Bank made headlines at the start of the month when it cut the official interest rate to a record low of 1.5 per cent. And the cut has some big implications for investors.
As a result, there has been suggestions among the media that in some cases self-funded retirees would actually be better off on the pension than living off their savings.
AMP Capital chief economist Shane Oliver told the Herald Sun some self-funded retirees might eventually require government assistance to make ends meet.
Mr Oliver said, “The problem is we’re seeing bank deposit rates fall from 6 or 7 per cent down to 2.5 depending on which bank you’re with, in only a few years.”
“If their savings get so low, they might have no choice but to go on the pension to make ends meet, or they will have to take more risk with their investments, by investing in the share market for example, to get a higher income flow.”
At the moment the aged pension for a couple works out to be $34,252.40 a year. Under the new rates a 65-year-old couple would need $1,207,925 stowed away if they wanted to achieve the same levels of returns on an annuity investment.
With interest rates essentially out of our control, diversification seems to be the same of the game in terms of hedging your finances against external forces.
Adelaide financial strategist Theo Marinis, of Marinis Financial Group, told The Advertiser that ultimately the best way people can prepare is through diversification.
“Nothing that is going well lasts forever, that is why the first rule of investment is diversify, the second rule of investment is diversify and the third rule is diversify,’’ Mr Marinis said.
“For example, commercial property through managed funds has had fantastic yields over the past 12 months in double figures.’’
What do you make of these figures? Do you feel like you’ve been adequately prepared to meet the requirements of life after work? Let us know in the comments.
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