Retirement
How 3.8 million Australians lose out with the cash rate cut
While mortgagees celebrate the Reserve Bank of Australia’s decision to lower the cash rates to a new record low, Australia’s 3.8 million retirees are set to take another hit to the back pocket.
How 3.8 million Australians lose out with the cash rate cut
While mortgagees celebrate the Reserve Bank of Australia’s decision to lower the cash rates to a new record low, Australia’s 3.8 million retirees are set to take another hit to the back pocket.
Following a low cash rate, the 10-year government bond yield, which is already trading at historic lows, has recently dipped below the 1.5 per cent.
With market economists expecting the rate to only continue to fall, Dom Hamson, managing director of Plato, believes that retirees’ income will continue to also suffer.
“Retirees living off cash-linked income will struggle to make ends meet. So, it is very timely for retirees to reconsider their income-generating asset mix,” said Dr Hamson.
The silver lining
As interest rates are hitting an all-time low in Australia with bonds following, dividends paid by Australian companies have never been stronger.
However, not all retirees are cashing in on this growth with traditional blue chips cutting dividends.
“Dividend increases, for example, have been largely concentrated in the resources sector, with traditional income stocks like the big four banks and Telstra either maintaining or cutting dividends,” said Dr Hamson.
“A cut in interest rates – while it won’t lead to an increase in dividend income – will also lead to increased investor demand for dividend-paying stocks, raising the capital value of some,” said Dr Hamson.
Dr Hamson added that with over 5 million Baby Boomers moving into retirement, the need has never been greater for new and innovative retirement income.
“Active dividend income strategies should be a key part of the discussion about retirement income, given that dividend income can be four times that of term deposits,” said Dr Hamson.
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