FIXED INCOME AND PLANNING FOR RETIREMENT
Glenn Stevens, RBA governor, stirred up the retirement community last month by flagging the fact that generating enough retirement income in a world of historically low yields would be a ‘nontrivial’ challenge for all concerned. “The key question is: how will an adequate flow of income be generated for the retired community in the future, in a world in which long-term nominal returns on low-risk assets are so low?” asked. “This is a global question. Just about everywhere in the world the price of buying a given annual flow of future income has gone up a lot … Those seeking to make that purchase now, that is, those on the brink of leaving the workforce, are in a much worse position than those who made it a decade ago.” In such a world of low interest rates, do fixed interest investment still offer the safety and security for retirees that they once did? Bearing in mind that CPI for the year to the end of March 2015 was 1.3%, is it still possible for investors and savers to secure a reasonable retirement income from the fixed income investments available?