When Reserve Bank of Australia (RBA) governor Philip Lowe effectively ruled out an interest rate rise in the foreseeable future, retirees around Australia were not exactly thrilled. The RBA has already kept official interest rates on hold at 1.5% since August 2016 and this ultra-low rate has made retirement planning very difficult. But few people realise quite how big the problem is — especially for those already in retirement.
Record low global interest rates and low investment returns from the defensive asset classes traditionally favoured by security-conscious retirees — like term deposits and bonds — are having a significant impact. Although there is no ‘correct’ investment mix for retirees, an emphasis on capital preservation and safety often makes the ultra-low interest rate problem worse.