Retirement Planning - Dividends and Interest

Tuesday, September 15, 2020

For several years now the RBA have gradually been cutting Australian Interest rates to historical lows in an effort to stimulate growth and spending in the economy. While this may be strategically beneficial for Australia’s economy, from an investment viewpoint it is extremely unattractive for anyone looking toward retirement and their income future.

For several years now the RBA have gradually been cutting Australian Interest rates to historical lows in an effort to stimulate growth and spending in the economy. People tend to take more risks with property investment for example leading to employment and economic activity, and consumers spend more because the “cost” is low, leading to activity in our retail sector and to monetary flow within our economy.

With the advent of COVID and the extreme pressures on business, employment and Australian economic growth, this has set the short to medium term future to one of further low interest rates.  Currently the RBA is sitting at a low never seen before in our country of 0.25%

While this may be strategically beneficial for Australia’s economy, from an investment viewpoint it is extremely unattractive for anyone looking toward retirement and their income future.  Retirees wanting to live off the growth of their lifetime of savings, or their superannuation are looking for the best investment returns available.

Many retirees have moved to into share investments to take advantage of the improved returns via dividends and share value. Certainly over the past several years the markets have returned better results than deposits in savings. However dividends are not immune to the current economic climate, and as companies review their earnings potentials we are already seeing reduced dividend returns, the biggest of which have been in the Travel, Energy, and Finance sectors for obvious reasons. The companies are holding Cash to sustain themselves and their future. The result is an expected trend of lower dividends to continue over the next year.

Traditionally living off your retirement savings has been a balance of drawing an income while maintaining your capital as much as possible.  While over the past decade a 6% income on investments may have been considered reasonable, this has reduced to a more modest 4-5%. With potentially lower dividends expected going forward there is a new landscape to navigate. Certainly there is a buffer for some with the Age Pension making up some difference of income with complexities and options there to be considered.    

These are absolutely times to be well advised for best strategic investments to maximise your income in retirement and we strongly advise the expertise of a Financial Adviser to navigate your way in this new terrain.

For more Information contact Mark Digby at Maher Digby Securities Pty  Ltd - Financial Advisers – AFSL No. 230559 – Ph: 075441 1266.  This document was prepared without taking into account any person’s particular objectives, financial situation or needs. It is not guaranteed as accurate or complete and should not be relied upon as such.  Maher Digby Securities does not accept any responsibility for the opinions, comments, forward looking statements, and analysis contained in this document, all of which are intended to be of a general nature. Investors should, before acting on this information, consider the appropriateness of this information having regard to their personal objectives, financial situation or needs. We recommend consulting a financial advisor

 

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