Interest rates and your retirement plan

For those of you who planned your retirement as recently as 12 or 18 months ago it may be time to do your maths all over again. Lower interest rates mean you will need to save more to provide an adequate retirement and have made it increasingly difficult to get even a modest 5% per annum return on your money.

With all of the recent economic uncertainty and market volatility we have seen more and more investors seek safety within their super investments in the form of cash. The hoarding of cash is common however as interest rates have been falling (and along with it cash and term deposit rates) many of you will need to reassess your strategy as you search for a reasonable income on your investments.

Building an income oriented portfolio is not about simply investing in government bonds. These alone will not help you boost your income as provide only modest returns. It is more likely you will need to take on a multi-pronged approach involving high quality bonds which will help provide stability, income in excess of term deposit rates and smooth returns should markets hit another rough patch, a mix of semi government and corporate debt allowing access to higher rates of income with relatively little added risk and, for those who can handle a little volatility, some high yielding Australian shares are worth considering. Dividend yields on blue chip shares are attractive and investing in shares also provides scope for capital growth over time. Current dividend yields on a diverse portfolio of shares can generate gross income of around 8% per annum which is almost double the term deposit rates currently available.

Securing a high and stable income stream is difficult in our current low growth, low interest rate environment so it is worth considering adopting a diversified approach to your investment allocations. A mix of solid fixed income investments can significantly boost your overall yield levels without taking on significant extra risk.

The alternative may be to simply spend a little less by reviewing your budget, use some of your capital to fund living expenses rather than try and live solely off the income you are generating or do some part time work to help supplement your other income.

 

Knight Financial Advisors Pty Ltd is a Corporate Authorised Representative of Sentry Wealth Management Pty Ltd (AFSL 227 748) ABN 77 103 642 888. The information contained herein is of a general nature only and does not constitute personal advice. You should not act on any recommendation without considering your personal needs, circumstances and objectives. We recommend you obtain professional financial advice specific to your circumstances.