Reserve Bank governer Glenn Stevens says any move in the cash rate in the near future would be down.
Senior Australians should be angry about the financial cards they have been dealt in the past decade.
A CASH crunch is looming for millions of Baby Boomers and retirees as a flurry of negative financial factors conspire to reduce their incomes.
The Reserve Bank this week hinted at another interest rate cut, which would further weaken already low rates offered by savings accounts.
Added pressure is coming from age pension changes that will knock thousands of dollars off the incomes of many retirees in 10 months’ time, while some popular shares owned by mum and dad investors have slashed the size of their dividend payouts.
“There are a lot of headwinds,” said Planning for Prosperity senior adviser Bob Budreika.
Average term deposit interest rates have dropped by more than two-thirds per cent since 2008, from 7.6 per cent to 2.4 per cent, denting the incomes of the 3.6 million Australians aged over 65 and millions more Baby Boomers aged in their 50s.
A horror start to the year dented the value of Baby Boomers’ share investments.Source:Supplied
Tougher rules for the age pension asset test from January next year will mean 300,000 retirees are set to lose part or all of their pension.
“When you do the numbers, some couples getting a full pension now are going to lose $11,000 a year combined, and if they become single because one dies, they get zero,” Mr Budreika said.
He said the income crunch would force many older Australians to consider unconventional measures such as working longer, selling their homes or taking out reverse mortgages.
AMP Capital Investors chief economist Shane Oliver in Sydney.Source:News Limited
Interest in reverse mortgages — which dip into a retirees’ home equity — had been rising in the eastern states where property prices had climbed, Mr Budreika said. “You feel pretty comfortable if you know your house is going up 7-10 per cent a year.”
AMP Capital head of investment strategy and chief economist Shane Oliver said a change of wording in the Reserve Bank’s interest rate statement this week suggested a greater bias towards another rate cut.
“Our view remains that the RBA will cut interest rates again this year,” he said.
“Whether there is another rate cut or not from the RBA, it remains very hard so see rate hikes any time soon. So the period of low interest rates is set to continue.”
BetaShares chief economist David Bassanese also expects an interest-rate cut later this year. “Sadly, for those relying on interest income, the news is probably going to get worse before it gets better,” he said.
BetaShares chief economist David Bassanese.Source:News Limited
Many self-funded retirees invest heavily in shares. A horror start to the year dented the value of their investments, and during the recent reporting season popular stocks such as Woolworths and BHP Billiton cut their dividend payouts by 34 and 70 per cent respectively.
Banks have been better, largely keeping dividends steady rather than cutting as some investors had feared. “Probably the best they can expect is dividends to be maintained. A few years down the track they will probably start to lift dividends again,” Mr Bassanese said.
“The challenge for retirees is to get decent income these days. You do have to face the risk of being invested in shares.”
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