We forget interest rate cuts can hurt many retirees 68



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The 0.25 basis point interest rate cut today furnished by the Reserve Bank is leaving those in debt with a slightly wider smile on their face and those with money in cash a little poorer tonight.  For over 60s who have paid off their homes and assets, an interest rate cut is not the most thrilling thing to see anymore, yet our country and its youth-focussed media seems to forget this, time and time again, celebrating rate cuts as a solely positive move for the nation.  What is often forgotten when there is a rate cut is that there is a whole sector of the economy that relies on interest rates being a little higher… those with money in cash, generally our nation’s retirees.  And it is not as though they are a small and quiet group… anymore.  Over 60s make up over a quarter of our population these days, so the impact of an interest rate cut on their ability to spend should not go unnoticed.

The GFC had a terrible impact on the wealth of today’s retired and nearly retired.  And six years on from the worst of it, some are only just starting to be able to contemplate living out the retirement dreams that might have seemed so close in 2006, yet so far away in 2009.  It bruised investment confidence for many in the older generation in a way that is still being seen in investment risk profiles that now lean increasingly towards cash, despite low cash returns.

In a nutshell, many retirees have been scared into keeping a good portion of their income producing assets in cash-related investments, hoping to be protected from risks to their capital (like those we saw a few years ago such as inflation and investment risks).  They strive to achieve good returns on their retirement benefit but want to have access to their capital to meet unexpected expenses or to leave some money as a bequest.  Cash performs well under many of these demands.  But, a low and lowering interest rate environment certainly doesn’t make it easy for self-funded retirees.

How long will the rates stay this way is anyone’s guess – according to Reserve Bank Governor, Glenn Stevens, it will be long enough to add further support to demand in the economy…

So I have to ask today – did the interest rate cut affect you negatively rather than positively or were you happy to see 0.25% reduction in interest rates today?  

Rebecca Wilson

Rebecca Wilson is the founder and publisher of Starts at Sixty. The daughter of two baby boomers, she has built the online community for over 60s by listening carefully to the issues and seeking out answers, insights and information for over 60s throughout Australia. Rebecca is an experienced marketer, a trained journalist and has a degree in politics. A mother of 3, she passionately facilitates and leads our over 60s community, bringing the community opinions, needs and interests to the fore and making Starts at Sixty a fun place to be.

  1. Agree, want us to be self sufficient in retirement but all gloat about a cut in rates. As Julie said ‘Bad for me’

  2. I wish the banks could only charge the same as the Reserve rate. They are still making too much profit. It’s good for Aust. businesses but prices for anything from overseas is going to be more expensive which only hurts us more. Buy local it’s got to be cheaper.

    1 REPLY
    • Its not cheaper that’s the problem… People buy what they can afford and imported foods etc is cheaper than local grown and made.

  3. Not good for us. Good for the young ones though. I hope the don’t squander the opportunity. I hope they are grabbing the chance to pay down their home loans with both hands and not upgrading the near new car for a better one or having a nice holiday. They too will be old one day God willing. They have an opportunity now to be better prepared for it than we were with no compulsory super and 17% home loan interest rates.

    1 REPLY
    • I hope that none of our children see the time when interest rates go to 17%, it was a terrible time of our lives, struggling with small children – thank god my parents helped us with minding our children after school to allow me to go to work – it virtually pushed me back into the workforce, which I have only just got out of. No-one wants to see this generation go through the tough times – but it is definately something that could be on the horizon, and all our families need to be paying off their loans, rather than “upgrading” so they can secure their futures.

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