Self-funded retirees require more than ever

With the most recent cuts to the official interest rate, retirees who choose to fund their own retirement now need more than $1 million in savings to achieve the same return as the aged pension.

As a result of the RBA’s latest interest rate cut to 1.5%, bank deposit rates are approximately 3%[1]. Added to this is the chance of another rate cut before the end of the year, however much depends on the actions of the US Federal Reserve. Chair Janeth Yellen has made noises recently regarding the possibility of a rate increase in the coming months, potentially as soon as the Reserve’s December meeting[2]. This would add to the US rate hike in December 2015, its first in nearly a decade.

Regardless of what transpires in the US, it is expected that incoming RBA Governor Philip Lowe will lower rates before he raises them. Inflation continues to stagnate, to the extent that there have been calls from some quarters for the RBA and the government to abandon its traditional inflation target, instead using GDP growth as a measuring stick[3] .

Whatever happens with domestic and international interest rate decisions, SMSF trustees and self-funded retirees need more in the bank than ever before in order to ensure a fulfilling retirement.

The aged pension for a couple is currently $34,252 per year[4]. This is roughly the same as the Association of Superannuation Funds of Australia’s (ASFA) ‘modest’ retirement figure for a couple, which is $34,216[5].

To achieve the same income as the pension in a one year term deposit paying 3%, the required investment amount would be just over $1.12 million, bearing in mind that amounts over $250,000 are no longer government guaranteed.

With the hunt for yield among those no longer working well underway, many SMSF trustees and self-funded retirees are seeking alternative investments. When analysing investment options, it is more important than ever to determine your risk profile, and balance your risk and reward accordingly.

Trilogy Funds have a number of investment options to suit different risk profiles. The Trilogy Monthly Income Trust (order an information pack here) pools investors’ funds to invest in loans secured by registered first mortgages over Australian property. uSelect Mortgage Investments (order an information pack here), a syndicated fund, invests using a similar philosophy, however investors’ funds are not diversified across a pool of loans, but rather focussed on one loan.

Disclaimer: While every effort is made to provide accurate and complete information, Trilogy Funds Management Limited does not warrant or represent that the information in this article is free from errors or omissions or is suitable for your intended use. Subject to any terms implied by law and which cannot be excluded, Trilogy Funds Management Limited accepts no responsibility for any loss, damage, cost or expense (whether direct or indirect) incurred by you as a result of any error, omissions or misrepresentation in information. Note: All figures are in Australian dollars unless otherwise indicated. This information is issued by Trilogy Funds Management Limited (AFSL 261425) and provides general information only. It does not provide financial product advice nor is it an offer of securities. Applications may only be accepted by completing the applicable application accompanying the relevant PDS. If you require personal advice on the suitability or other aspect of this investment, consult a licensed adviser, who will conduct an analysis based on your circumstances. Past performance is not a reliable indicator of future performance.

[1] http://www.canstar.com.au/term-deposits/term-deposit-rates/

[2] http://www.wsj.com/livecoverage/federal-reserve-september-meeting

[3] http://www.businessinsider.com.au/nick-xenophon-wants-the-next-rba-governor-to-ditch-inflation-targeting-in-favour-of-growth-2016-8

[4] https://www.humanservices.gov.au/customer/enablers/payment-rates-age-pension

[5] http://www.superannuation.asn.au/resources/retirement-standard