Low interest rates are ruining your retirement 4



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Reserve Bank Australia chief Glenn Stevens has warned that low interest rates come at a high cost to retirees.

Stevens says today’s world of ‘ultra-low’ interest rates is putting increasing pressure on returns for superannuation funds highlighting that many savers stand to be “disappointed” about the direction of their retirement nest eggs.

Speaking at a conference in New York, Stevens says, “Increasingly we are hearing commentary about the difficulty or impossibility of defined benefit pension plans making good on their promises with long term rates of return being so low.”

He went on to say that the problem is “almost certainly” not confined to defined benefit plans, with even accumulation plans signifying some set of assumptions about future income needs and returns.

He says policy makers need to look beyond low interest rates for ways to encourage economic growth, including worthwhile infrastructure projects.

Stevens canvassed the idea of so-called ‘helicopter money’, whereby a central bank would give money to private individuals or businesses, or to governments, which would then spend it. However, he admits it would be far easier to commence such a system than to stop one. Such spending was formally ended in Australian in 1987.

Even if there has been a downward shift in the achievable rate of growth, through excessive debt, limits to productivity growth, or demographic factors like the ageing population, there are things that should be done to improve the outlook.

Stevens warned that world-wide slow growth “implicit promises” about retirement incomes were in danger of not being fulfilled.

“It may take longer, but surely eventually many of the owners of these funds are going to feel disappointed.”

Are you concerned about your retirement nest egg? What other concerns do you have?

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  1. As usual, Baby Boomers have been chosen by government to carry the can for the governments economic incompetence.
    After many years of sacrifice to build a good superannuation balance we have been rewarded for our prudence by a low interest rate policy that produces returns less than an Age Pension .
    Has it occurred to them that an increasing number of self funded retirees are living in poverty and consequently spending the absolute minimum when they should be receiving good returns from their Super and pouring it back into the economy as they enjoy retirement.
    It is time that self funded retirees made their feelings known and demanded that governments cease policies that clearly penalise the very group in society that they should be rewarding.

  2. Super funds need to be checked regularly online and asset classes mix changed according to performance figures.
    Returns are still much better than fixed deposit accounts with banks or with annuities.
    Industry super funds are better performing than retail or government super funds and ensure that you are not paying for a financial advisor who charge 1 -2% commission and I’ve been told that they do very little.

    1 REPLY
    • By lowering the pension thresholds, the faster our money will go and the quicker more retirees will be either on FULL or PART pensions, seeing interest rates are so low and self funded retirees are not producing returns close to the age pension means Faster eligibility to receive Pensions = more Pensioners and even higher costs than now.
      Where is their common sense. And why are they targeting the lower income earners anyway??

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