Challenge for retirees as interest rates (and confidence) plummet

Font Size:

Falling interest rates are scaring Australians, with confidence falling to a four-year low and many retirees struggling to generate an income from their nest eggs.

Confidence in the economy has hit its lowest point since July 2015, according to the latest Westpac consumer sentiment survey.

Confidence plummeted 5.5 per cent in October, above and beyond the forecast 0.3 per cent decline, after the Reserve Bank of Australia (RBA) cut the official interest rate for the third time this year, this time to 0.75 per cent, with further cuts forecast.

Commonwealth Bank senior economist Belinda Allen said the results showed that rate cuts were actually scaring Australians and that that negativity was likely to weigh further on the economy.

Consumer confidence is continuing to plummet, down a dramatic 5.5 per cent in October to a four-year low, according to the Westpac survey.

“Consumer sentiment has fallen after each rate cut by the RBA and the reaction has been larger after each subsequent rate reduction,” Ms Allen told Business Insider Australia. “The falls have been 0.6 per cent, 4.1 per cent and 5.5 per cent after the June, July and October decisions respectively.”

Ironically, that’s the opposite of what the RBA had hoped would happen, she added. Lower rates typically encourage spending, but as the economy has continued to weaken, they appear to be scaring Australians.

“There had been hope that lower interest rates, tax rebates and now rising house prices would help elicit an improvement in consumer spending in late 2019,” Ms Allen said.

“Persistently weak consumer sentiment does raise the risk that we do not see an ongoing lift in consumer spending. The RBA has noted it expects to see half of the rebate spent and half to be saved. A more negative view of family finances apparent in the sentiment figure does place this expectation at risk.”

Breaking down the survey, Australians are particularly anxious about where the economy will be in 12 months and five years.

Superannuation research house SuperRatings said late last week that while superannuation fund pension returns had held up well as official interest rates had fallen this year, it was a challenge for funds to deliver income to those in retirement.

The hunt for yield was intensifying, he said.

“Pension returns are holding up well,” he said, “but the split between capital gains and income is critical for retirees, because they rely on income streams to fund activities in retirement.

“Over the past few years, we’ve seen super funds steadily reduce their allocation to bonds in favour of other income-generating assets like alternatives and property in order to generate their required yield.

“We expect this theme to continue to play out as rates remain low and possibly move lower over the next year or two.”

In light of the Westpac survey, Ms Allen said CommBank believed the Government needed to spend more to take the pressure off the RBA to right the economy

“We have been saying for a long time now that extra fiscal support in the way of further personal income tax cuts and more infrastructure spending would be more beneficial than taking the cash rate lower,” she said. “The evidence on the efficacy of lower interest rates is sending some negative signals.”

Are you concerned that the economic circumstances could wreck your retirement?

If you enjoy our content, don’t keep it to yourself. Share our free eNews with your friends and encourage them to sign up.

Join YourLifeChoices today
and get this free eBook!

Join
By joining YourLifeChoices you consent that you have read and agree to our Terms & Conditions and Privacy Policy

RELATED LINKS

Can bank manager stop sisters withdrawing money for funeral?

Confused Brendan asks Rod Cunich for clarification on bank's funeral costs knockback.

Calls to allow insurers to charge higher premiums for the sick

Paper urges Government to subsidise sicker Australians' health insurance costs.

Watchdog goes after super funds on junk insurance

ASIC says funds are failing to comply with a new code of conduct.

Written by Janelle Ward

67 Comments

Total Comments: 67
  1. 0
    0

    My bank asked me if I wanted to retire, I said there’s no interest in it. Lol

  2. 0
    0

    Maybe the time has come to start using some of that nest egg instead of only living off the proceeds. I have seen 18% interest rates and made use of them and now we see close to 0% and we have to use the capital. Why do most Aussies believe in keeping the nest egg for the next generation instead of using it for their old age?

    • 0
      0

      More of us have seen 18% interest rates and paid them … feel free to live off your nest egg…. for many their nest egg is their home, currently under siege by a rapacious horde of Mongols called government and their allied tribes….

      … lock in D), Eddie …… because once the nest egg is gone… it’s gone….. and the way things are going, they might not get a pension…. and then the only right to leave inheritance will go to the rich who will one day own the earth and all who dwell in it….

    • 0
      0

      The nest egg is what we need to live off the proceeds. If we can have a cache large enough not to burden the Government pension fund then everyone should be happy.

      Remember that nest egg is devaluing with every inflationary increase. We need at least 5% above the inflation rate to make the nest egg work for us. If there is something left over at days end then I hope it will bolster my children’s superfund so they can live comfortably in retirement.

      -and yes, lowering the Reserve rate did make me inclined to batten down the hatches for the storm that’s brewing.

    • 0
      0

      … when I bought my first small farm, interest rates rose to 14.5% on mortgage… I was made redundant from a job and didn’t eat to pay the mortgage… then found a job again…. worked 100 odd hours a week….

      I figure I’ve earned my keep….. and my right to Rebellion™ …. a right not restricted to the kids about climate change…. if only they had the tiniest inkling what true revolutionary motivation was…. uni quadrangle sidewalk cafe’ socialists the lot of them… wait ’til they grow into their noses, get a degree and get a job in politics with the luxury run for life… they’ll never look back … meanwhile the Roots of Heaven of any viable society – those who actually do the toil, will grow poorer and poorer…

      Good movie, that Roots of Heaven… applicable to many areas of society, not just elephants…. elephants are the allegory….

    • 0
      0

      .. it’s pretty obvious a typhoon is coming when the government agency battens down the hatches and lightens topside… maybe they’re hoping a Halsey’s Storm will come, and only three destroyers founder instead of the whole fleet…

    • 0
      0

      (in the dark days of 1944-45, before weather radar and accurate weather reporting – a huge Tai Fun hit Adm Halsey’s fleet – he turned into it since he was attempting to ‘weather it’ head-on …

    • 0
      0

      Maybe because you don’t know what health costs or maintenance costs or how expensive things might get. Foolish to blow all your savings and then not be able to afford the goods or services you need as you age. I don’t believe it’s about leaving money at all. That is a Grattan idea designed to rob savers as they think they are all wealthy. Grattan works on averages which distorts the real situation.

    • 0
      0

      Indeed – health costs – we are all living longer – I frankly wouldn’t be here without advances in medical science… (lucky you lot) … and all that has a very high price tag….

      Either as a society we need to shoulder the burdens of healthcare imporvement costs and a few other things – or go on the way we have been and whine about it endlessly – with governments repeated saying there is no money in the till, when they live the life of Reilly and spend like drunken sailors on unnecessary things like ‘PC’ and ”social science’ issues – many of which are already covered by existing infrastructure (see ‘discrimination commissions’ etc and courts/contracted out work already done by PS)…. but which provide nice little lifetime earners for a few of their chosen mates…

      Grand Theft Canberra, and as good as a Central American Republic giving out all the plum jobs to friends and family … I speak with my cousin, ze treasurer, por favor.. a deal can be made…

    • 0
      0

      I absolutely agree with Cowboy Jim. Too many retirees deprive themselves of a decent retirement by being too conservative with their spending. With the current Age Pension system a couple who own their home retiring with $300K in Super could reasonably expect to live on $48K a year (indexed for inflation and standard of living increases) and still have a small amount in Super at age 90. According to ASICs MoneySmart Retirement Planner they could live on $48K a year (including Age Pension) with their Super conservatively invested, i.e. inflation at 2% and investment return at 3.8% before inflation and still have $54K in Super in today’s dollars at age 90.

      I’m certainly not advocate blowing retirement savings in the first few years for a rollocking good time but I think it is plain silly to live out your remaining days worrying about what might happen in the future. The same couple could choose to live on $44K a year and only have and extra $20K in Super at age 90.

      Another couple retiring with $500K who choose to live on $48K a year would have $125K in Super at age 90. Only $76K more than the couple starting with $300K! Granted having more in savings gives you a buffer to cope with the challenges that may come along but the more you diminish your savings on these things the greater is your entitlement to the Age Pension. Surely this in itself mitigates some of the risk.

    • 0
      0

      That is fabulous Maci and far better even that a defined benefit income stream. Obviously there is no need to worry at all. Also under $50 000 a year still allows a bit of aged pension and concessions.

    • 0
      0

      Totally agree. Know a number of retirees living on the smell of an oily rag when there is no need to do so. Won’t even go out for a coffee, a meal with friends. NOthing at all. Stay at home squirrelling away every cent. Just do not understand it at all.

  3. 0
    0

    Retirees have families so it is not just about us but our families moreso.
    .75% interest rate is actually quite scary and a possible error. Why aren’t people spending? Those with mortgages put any spare money there which is understandable. Many poor people are living pay to pay and just making it or not. So the tax cuts have not worked.
    The government has been told repeatedly to raise Newstart to cause more spending. If the money goes to where the spending actually happens then that makes sense to do that. Government is beholding to big business which is a catastrophe because that is where the solution most likely lies. If all those paid tax that money would cover all pensions and benefits. This makes it welfare to big business instead of throwing the money where it would actually stimulate the economy. So sad!

    • 0
      0

      Watch out, Paddo – someone here will leap at your throat for being ‘Bolshie’ for suggesting that white trash and other layabouts should get a rise in subsistance money, to support a failing economy.

      Too ‘Socialist’ that – and what would Maggie thatcher say… you’ll run out of other people’s money…. god, what an economic illiterate… no idea of government revenue…

    • 0
      0

      … soon with endemic unemployment and prejudicie/discrimination, we’ll have some running around saying:-

      “Shiftless Whites – drink and drug all day, bash their women, won’t work, dress and live like trash, and make land claims because their ancestors once worked the land, so they say…”

      The Future of Austrochine ©… … Austrochine is MY book and MY work…

    • 0
      0

      … sorry – I left out serial parenting etc… and going walkabout all the time…

    • 0
      0

      Yes TREBOR, I’ll challenge Paddington although not exactly a throat jumping challenge. It’s very easy to make spurious claims that big business doesn’t pay tax or their fair share of tax but that’s singing from the Labor song sheet with no proof of the claim. The ATO investigates taxpayers, including big business, and prosecutes those who evade tax as opposed to those who avoid tax by using current legislation. Be nice if you could define “big business”, Paddington, and also give examples of those who are not paying the tax that they are required to by law.

    • 0
      0

      As I’ve said many time – the REAL issue is not tax rules for the peons – it is the vastly different tax rules for business, those rules being set up at a time when only those over a certain net worth even had the vote – and the tax rules and deductions allowable for the peasant.

      Hasn’t really changed since the Industrial Revolution days … now that’s what I call ‘conservatism’…. difference is – it IS broke, so needs changing….

      Either the peons get to deduct ‘home office’ and ‘travel for work’ etc – or the companies don’t get to deduct those… cannot be both ways.

    • 0
      0

      Paddington I wont argue with you that Newstart is too low. However, if you understand the LNP view point on the economy its easier to understand the rationale.

      The LNP invest taxation $ in the most likely place where it will give optimum return. That is without a doubt the working population with families. They are the people who fund Newstart and the Pension etc. If they go under then there is no money for social welfare. The countries with the lowest taxation and the cheapest utilities have thriving economies.

      When the Labor party gave $1000 to taxpayers Australia was in a very strong position compared to other nations so everyone went out and bought plasma TVs. At the moment $1000 is going into restocking the reserves. ie you don’t waste water in a drought.

  4. 0
    0

    I wonder how much of an SMSF is held in cash. I know my super fund has a mixture of investments and cash is well down by percentage. Is the low cash rates for investors really a big problem or is it just another reason for pessimists to have a say?

    • 0
      0

      I hold 4 years of pension payment in cash in my SMSF.

    • 0
      0

      … very iffy stock market….. oh, well…. Crash and Burn and start again…. five year plans and New Deals and demands for rampant and unconstrained capitalism – the peons can live off the countryside or in the company housing and off the company store…

      https://www.youtube.com/watch?v=tfp2O9ADwGk

    • 0
      0

      That’s why I have four years pension in cash so I simply don’t have to sell in down markets.

    • 0
      0

      According to ATO stats in 2017 SMSFs with balances between $500K and $1M on average had 27% invested in cash, 27% directly in Australian shares, and 13% in property. Generally the lower the SMSF balance the greater % held in cash. SMSFs with balances under $200K had between 45% to 55% held in cash.

      For me, I can’t see the benefit of SMSFs for most people – even for those with balances between $500K and $1M and especially for SMSFs with less than this amount. The diversification and the scale is poor. If the Australian economy crashes they will be in dire straights. Even now with such a high proportion invested in cash things can’t be looking good. Add to that the administrative costs and hassle – why would you bother. The average administrative cost of running a ‘low fee’ SMSF in 2014 was about $2500. I paid $650 in admin fees for my Industry Fund last year.

  5. 0
    0

    The economy is on life support and right now, nurse, needs an adrenaline shot to the heart… hand me the infrastructure hypodermic with the solid based economic activity needle…. and, orderly, keep a very close eye on those vitals… and team – get the paddles ready……

    • 0
      0

      The economy should be booming and would be only we had a stupid government that spent way too much and just kicked the can down the road. We have just about caught up with it now.

    • 0
      0

      I’d like to see that, BB – we are foundering as we speak – and the current lot have held the reins since 2013.. just reminding you… and their expenditure is amazing and their debt ceiling astounding… and a lot of it spent is not returning to this nation in any way ….

      As before – when you give Faroffrance a contract to build lead airships for you, there is no similar contract in the offing for Faroffrace to contract Australia to build its lead-bottomed steam driven submarines… what we give out to the world instead of our own we never get back……. and its billions and billions at a time…. then we have a separate Airships Corporation to duplicate/triplicate the Departments of Defence and Defence Procurement… nice for a few old mates.. nice little earners for doing nothing and copping it sweet….. AGAIN…

      El Presidente would be most pleased…. El Grande Republica da San Austrador is going well… very fast downhill… but no politician will suffer in The Downfall… their retirement stash is hidden away from our tax department’s grasping hands…. Offshore!

    • 0
      0

      Think of it this way – when the economy collapses and the average income crashes to $10,000 pa on mega tax to make ends meet …. your average politician will be a two-eyed man in the land of the blind… raking in an indexed for life $200-300k pax….. without tax.

      You get this picture yet????? You see where we’re headed? and you trust these people to run your country?

      Now – all those peasant men.. you recall the 1930’s? The Great Depression where men took to the roads to find work, any work, and were ‘moved on ‘ from town to town and often arrested for being ‘vagrants’ etc, and were generally treated like scum? (vestiges of this remain to this day with the incredible redneck attitude in some areas about ‘new blokes in town without a job’…. somehow these are automatically criminals and are treated as such without any reason – trust your courts? Only after they’ve been burnt to the ground…)

      Those were the men who rushed to enlist in 1939…… same will happen when The Next Big One begins.. and what a disgrace that is….

      Review ‘Band of Brothers’ – jeez – one of those guys, an American Indian living on a reservation, signed up instantly to defend ‘his’ country ….. then the rights of Indians were abused for decades after and still are in some ways… then there are the coal miner’s sons….. enlisted, and fought and often died. First to answer the call… in a nation that despised them…(see modern day Australia)…

      Good morning and welcome to Around The World With Trebor – the show for the thinking Australian – man or woman…. good morning, good day, and good grief!!

    • 0
      0

      TREBOR – maybe it’s time to take a Bex and a lie down. Easy Man!!

    • 0
      0

      @Trebor – Not only a disgraceful situation re: The Next Big One, but it is not going to happen. “The Next Big One” will not require anywhere near the “foot soldiers”. Technology has seen to that. With regard to Cowboy Jim’s suggestion to take a Bex and lie down, don’t forget that Bex powders contained phenacetin which killed people – the reason they are not on the market now.

      All of these arguments are from the economics of the 60’s. When or if the politicians open their eyes ( tho unlikely according to your arguments ) we will see that massive change in welfare and tax laws is the only way forward.

    • 0
      0

      I wouldn’t put too much faith in technology – the best outcome would be a brief air war…. but the old maxim still remains – technology can savage a foe, but only ground troops can hold ground…

      Of course, a future war should not be about ‘ground’ (property, property – it’s all about property – James Jones in “TheThin Red Line”) – it should be about ‘instrumentalities’ – meaning economic factors primarily rather than defeating an enemy on the ground.

      That is the basis of ‘Asian Pacific Basin/Region’ Studies that are part of my terrorism/counter-terrorism study… the Region (as opposed to the physical fact of the Basin) is comprised of economic and social factors… we see this line of reasoning in the current agreement with Fiji for a peacekeeping force in the ME…. in order to secure (national security/international security) this region, we (the West) are better served in forming alliances and power groups, than in building up isolated atolls… and the Melanesian-Polynesian section has many social, economic and physical issues (such as sea level change (??) – hence it is a good move to consolidate existing links with these area – for national and international security reasons…

      Hence I can see what Morrison is doing here – but it would not be his own idea… his security advisors told him the way to go….

      I know – I know – I get a bit hirsute and abstruse for many …. sorry – to me this kind of talk is a daily common event…

  6. 0
    0

    Monetary Policy used to work well under a regulated financial system. Not now it’s deregulated.

    • 0
      0

      Careful, you’ll be labeled ‘Socialist’ as well and a promoter of Big Government and all its waste… gee – look at the cost of using the roads and power and gas caused by… oh, wait a minute… caused by giving control of them out to a few chosen mates…. all rapists of the economy and the Treasury….

      Back to the drawing board…

    • 0
      0

      We are headed down the path of austerity beloved of right wing governments to whom a surplus is the Holy Grail. Health, education and welfare will all be cut bit with tax cuts for the wealthy. If you don’t believe that look at the UK under it’s Conservative government and that policy had nothing to do with the EU.

    • 0
      0

      We are headed down the path of austerity beloved of right wing governments to whom a surplus is the Holy Grail. Health, education and welfare will all be cut bit with tax cuts for the wealthy. If you don’t believe that look at the UK under it’s Conservative government and that policy had nothing to do with the EU.

    • 0
      0

      Yes – austerity dragged Britain out of the doldrums and into near collapse…

  7. 0
    0

    I think the intergeneration warfare is on. RBA lowered the cash rate to assist the young ones to have access to housing affordability at the expense of the retirees’ interest income. However, this didn’t stop some institutes accusing us, the pensioners and retirees, being conservative in spending our money, selfishly holding on our big mansion and claiming OAP, and being mean in not paying taxes on our home, and taking our lots to the graves without paying inheritance tax.

    Let me remind everyone, we only live in a system that allows us what to do. We either enjoy our lives while we can or not. Is there someone wants to make our lives miserable because theirs are?

  8. 0
    0

    Just undoing the damaging asset and income test changes the LNP introduced and undoing the Fair Work Commission penalty rate changes would stimulate the economy. Those changes did effect spending as the data shows very clearly.

  9. 0
    0

    PENSIONERS TAX called the Deeming Rate on cash term deposits!

    • 0
      0

      Deeming rate has nothing to do with the cash rate at all. Many SMSFs made over 15% last financial year which makes the deeming rate way too low.

    • 0
      0

      We’re not talking about SMSFs, BB…

    • 0
      0

      Cash rate has everything to do with Deeming Rates that are not adjusted to reflect interest paid on term deposits. We have been here before! Over 600,000 pensioners and part pensioners are impacted upon by the hypocritical government. It is a fraud committed by this government, they tell banks to pass on interest rates to borrowers yet the government will not reduce the Deeming Rate on fixed term cash deposits that are deposited in these secure financial institutions!

  10. 0
    0

    With interest rates as low as they are, further reductions make almost no difference to an existing mortgage. A person with a $400,000 mortgage would be saving around $500 a year had the banks passed on the full amount. For that sum it is not worth reducing your monthly repayments. Further, over the last few years people have been encouraged to leave repayments alone so they can build a buffer into the mortgage against the inevitable rises that will come.

    With stagnant wages and everything from bus fares to rates increasing, it is not surprising people have little if anything left to spend.

    As for retirees, they are not helping themselves by keeping all their assets in cash with rates as low as they are. If you have more than 2-4 years living costs in cash, then you need to be reviewing your financial plan and look for investments that will generate a far higher return than the best term deposit. If you are not prepared to do that, then use the capital. If you don’t like that idea either then you seriously need to look at what you holding on to it for. – Children? Grandchildren? If so than accept your fate and stop moaning about it. That is your choice – live with it.

    • 0
      0

      Why are we talking about people with a $400’000 mortgage? This is supposed to be a forum for oldies. If an oldie has that kind of mortgage he should be in a loony bin (mental institution for PC people). How many years have we got left?

Load More Comments

FACEBOOK COMMENTS



SPONSORED LINKS

continue reading

Uncategorized

The last blockbuster had an end of summer sleepover

Several months ago, the last Blockbuster store on Earth temporarily rebranded - as an extremely nostalgic Airbnb. A few lucky...

Australia

Best day trips from Melbourne

We've got more reasons than ever to embrace the adventures we can find in our own backyard and, luckily, Victoria...

COVID-19

Travel SOS: What's the deal with face masks and flying?

Ian has seen reports of people flying without masks and wants to know if it is safe. Q. IanI have...

Mental Health

Frequent travel could make you 7 per cent happier

Every now and then we come across a study that feels as if it's stating the obvious. Such is this...

Uncategorized

Travel does at times confront us and make us squirm

Travel does at times confront us and make us squirm, which it should. Travel also can make us appreciate our...

Accommodation

You can now stay in a Buckingham Palace-inspired caravan

Have you ever wondered what Buckingham Palace would look like squeezed into a four-person caravan on the North Yorkshire coast?...

Flying

New measures will protect Australians from COVID-19 on all flights

Australia's national cabinet has announced new measures to protect Australians from COVID-19 on domestic and international flights and in airports....

COVID-19

Doctors call for action on social media’s health misinformation

The peak body for Australia's doctors has called on the government to invest in advertising to counter health misinformation being...

LOADING MORE ARTICLE...