Suite 8 / 260 Auburn Road, Hawthorn 3122
Phone: 03 9214 4100
Fax: 03 9818 6008
enquiries@trumpetfinancial.com.au
 
 
eWombat Search
  LATEST FINANCIAL NEWS
 
Hot Issues
How is your super going, ready for retirement?
Our 'hardest' SMSF tasks
Lack of literacy promotes unrealistic goals
Young investors: Time is on your side
Is your SMSF retirement-ready?
Key Economic Indicators, 2017 - updated
Investors acting their age
ATO locks in details, addresses panic on real-time reporting
Government ‘undermines’ tax system in new moves on property expenses
Multiple super accounts in a 'gig' society
Why Australian retirees aren't happy and what we can do about it
Doing a budget is a good idea but ....
Technical expert flags estate planning strategies for 2017-18
Government to shut down salary sacrifice loophole
Items that heat up your depreciation deductions
‘Tens of thousands’ of SMSFs at risk with ECPI
Do’s and don’ts of estate planning
LISTO to help boost women’s super
Smart ways to stretch retirement money
Low economic growth likely for years
Recorded Crime - Offenders, 2015-16
Adequacy of savings still a concern among Australians
‘Bank-like heists’ make way for new wave of cyber crime
Give your children a saving and investing edge - for life
Articles archive
Quarter 2 April - June 2017
Quarter 1 January - March 2017
Quarter 4 October - December 2016
Quarter 3 July - September 2016
Quarter 2 April - June 2016
Quarter 1 January - March 2016
Quarter 4 October - December 2015
Quarter 3 July - September 2015
Quarter 2 April - June 2015
Quarter 1 January - March 2015
Quarter 4 October - December 2014
Smart ways to stretch retirement money

Just think that in early June 2008, the Reserve Bank's cash rate stood at 7.25 per cent. Now fast forward nine years to early June 2017 and Australia's current cash rate is 1.5 per cent.



       


 


And just think of the impact of falling interest rates on the many retirees who may have become accustomed before the GFC aftermath to financing their retirement from the interest and yields generated by their portfolios.


Numerous retirees – as well as the swelling numbers of investors on the eve of retirement – are still struggling to adjust their expectations and practices for a low-interest environment.


Every time that the Reserve Bank has announced its latest decision in recent years on the official or "target" cash rate, retirees in particular have received just another reminder of how much rates have fallen. (The Reserve Bank this month has left its cash rate at 1.5 per cent for the 10th time in succession.)


In turn, the Reserve Bank regular interest rate decisions remind retirees that their bond interest rates and interest on term deposits are well below historic averages. But it's not as if they need any reminders.


What choices does a retiree have if they had become used to living off the interest and yield produced by their portfolios?


Many retirees may think, probably fleetingly, about trying to reduce their cost of living. Yet while most of us can spend our money more efficiently, few retirees would be willing or able to reduce their standards of living.


If unable to cut their living costs in a meaningful way, many retirees may jump to the conclusion that their only other choice is to move away from their carefully-prepared target or strategic asset allocations. Such a move usually involves increasing exposure to higher-risk, higher-yield bonds and a more-concentrated selection of high-dividend shares.


In short, retirees who put aside their strategic asset allocations of their broadly-diversified portfolios in pursuit of higher interest and yields are likely to become more exposed to market risk and volatility. And this may damage their portfolio's overall health and longevity.


Fortunately, another possible solution for retirees is to take a total-return approach to financing their retirement spending.


A classic Vanguard research paper, Total-return investing: An enduring solution for low yields, suggests that retirees consider taking both the income returns and the capital returns of a portfolio into account when setting retirement drawdowns and spending.


With this approach, retirees can aim to keep their appropriate asset allocations and broadly-diversified portfolio in tact rather than switching to a higher-risk portfolio.


Further, retirees should consider whether to take specialist advice about how much they should be drawing down from their retirement savings given their circumstances including the levels of yields/interest and capital gains being produced by their portfolios.


It is sometimes said that some retirees are unnecessarily frugal in their retirement spending given the understandable concern of outliving their savings. Taking a total return approach should help them make a realistic assessment of their portfolios and of their spending habits.


 


Written by Robin Bowerman
Head of Market Strategy and Communications at Vanguard.
19 June 2017
www.vanguardinvestments.com.au




12th-July-2017
Trumpet Financial Pty Ltd ABN 11 443 516 384 Corporate Authorised Representative (No 327756) of Aon Hewitt Financial Advice Limited AFSL 239183 ABN 13 091 225 642
Registered Address: Level 33  201 Kent Street, Sydney NSW 2000 | Sitemap | Disclaimer | Privacy Policy | About Aon Hewitt Positioning