Budget day decision to sting retirees

Older Australians living off retirement investments have had an extraordinarily tough few years with interest rates continuing to be slashed but, believe it or not, there are some predicting that things are about to get worse.

While the Reserve Bank of Australia (RBA) official cash rate is currently at a historically low 0.25 per cent, Westpac chief economist Bill Evans believes it will be cut further when the board next meets.

The RBA is set to meet and decide on the cash rate on 6 October, the same day as the Federal Budget. And while the RBA traditionally waits to see what is announced in the Budget before moving the cash rate, Mr Evans believes they will cut rates to 0.10 per cent on the same day, ahead of that night’s announcements from Treasurer Josh Frydenberg.

“The RBA is expected to announce all these policy changes on 6 October, the day of the announcement of the Federal Budget, as a Team Australia initiative,” Mr Evans said in a statement to clients.

“The prospect of the RBA ‘sitting back’ to assess the Budget, which has been seen as the ‘norm’ in previous years, is not appropriate for these unique times.”

The RBA cutting the cash rate may be the right thing to do for the economy, but it certainly does not do retirees any favours.

Retirees living off the interest earned from investments and superannuation will feel the pinch most of all, as lower interest rates mean lower returns. This may force some to take bigger risks in order to live a more comfortable retirement, or even preserve their current standard of living.

As YourLifeChoices has previously reported, savings products have faced an enormous number of cuts in recent times.

As of August 2020, the average savings rate was cut from 1.15 per cent at the same time last year to 0.65 per cent. Aussie banks and financial institutions have made 1736 cuts across all savings products since 1 March 2020.

Term deposit holders were the biggest losers, with term deposit products copping a total of 844 cuts. Savings account rates were cut 635 times in the same time, and the remaining 257 cuts applied to bank accounts.

Mr Evans is also predicting that the cash rate will stay at 0.10 per cent for all of next year and potentially for much of 2022, with unemployment caused by the COVID-19 pandemic being slow to recover.

The Westpac projections are based on a speech RBA deputy governor Guy Debelle gave to the Australian Industry Group on Tuesday.

In that speech, Mr Debelle said that the economy was not going to recover from the COVID-caused recession quickly.

“We are now in a gradual and uneven recovery,” he said.

“As the outlook for the Australian economy unfolds, the board will continue to assess the merits of the range of monetary options to best support the economic recovery.”

The RBA’s current forecast is that the unemployment rate will still be above 7 per cent by the end of 2022.

Do you worry about the lower cash rate? How will it affect your retirement? 

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Related articles:
https://www.yourlifechoices.com.au/finance/banking-and-investment/where-to-invest-for-the-grandkids
https://www.yourlifechoices.com.au/finance/banking-and-investment/bank-offers-nointerest-credit-card
https://www.yourlifechoices.com.au/finance/superannuation/why-growth-is-vital-even-at-64

Written by Ben

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