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insights insights

Factoring in lifestyle and spending habits from health to household goods, the guide aims to show whether you are on track to meet the retirement lifestyle you really want – whether that’s gardening, extraordinary travel adventures or just spending more time with the grandkids.

So how much is enough?ASFA predicts a couple – around 65 years of age – will need $33,799 a year to live modestly, jumping to $58,444 annually for a comfortable lifestyle. For singles, $23,438 is needed for a modest lifestyle, or $42,569 living comfortably1.

While living modestly or comfortably is subjective, ASFA considers living comfortably to include private health, reasonable clothes and car, dinner out once or twice a week, as well as domestic (and some international) travel. However, for both a modest or comfortable lifestyle ASFA assume you have reasonable health and own your own home.

How does the age pension stack up?Singles on a full age pension receive around $22,360 a year, enough for a modest lifestyle in retirement. However, for couples the age pension is around $33,7002, leaving a gap of nearly $25,000 a year to live comfortably.

Where do you stand today?The retirement gap – that is the gap between your savings and what is required for a comfortable lifestyle in retirement – is real.

The Government’s recent Intergenerational Report (IGR) noted that the median super account balance for a person aged 60 or over in 2011/12 was around $95,000 – well below what is required to be self-sufficient in retirement. For many in this group there is the expectation of receiving the age pension to support their retirement.

The IGR and ASFA findings both reinforce the value of making extra contributions to your super. In the following table, ASFA shows that for someone earning $50,000, 12 per cent contributions (up from 9.5 per cent) will add more than $50,000 to their super over 30 years3.

Retirement – how much is enough?Predicting exactly how much you’ll need in retirement can be difficult. To paint a clearer picture, however, the Association of Superannuation Funds of Australia (ASFA) has put together a ‘Retirement Standard’ guide.

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In this issue...

Retirement – how much is enough?

Interest rates – where to from here?

Is the falling dollar putting a dent in your holiday plans?

Lump sum retirement benefits after 30 years in a taxed fund

Contribution levels Wage of $30,000 Wage of $50,000 Wage of $100,000

9.5% $116,000 $193,500 $387,000

12% $146,000 $244,000 $487,000

15% $183,000 $305,000 $610,000

If you have any questions, please call us as we are here to help your retirement dreams become a reality.1 ASFA Retirement standard (March 2015)

2 Australian Government website, human services

3 ASFA November 2014: The future of Australia’s super – a new framework for a better system.

2  www.riaa.net.au

Interest rates – where to from here?Interest rates in Australia and around the world have hit historically low levels. So low, in fact, that for around 30 per cent of developed countries, investing in government bonds will provide negative returns after adjusting for inflation.

Why are interest rates so low?In its simplest terms, the Reserve Bank of Australia lowers interest rates to stimulate the sluggish economy. Lowering interest rates makes borrowing cheaper and more borrowing means more businesses are established, more is consumed and more jobs created.

Impact of low interest rates on investments and savingsAside from house prices, there are number of effects on the economy from low interest rates and there are both winners and losers.

The share market, in particular the companies who pay relatively generous dividends, such as banks, have risen in value. In fact, despite a recent pull-back, the Commonwealth Bank, ANZ and Westpac have all hit record highs in 2015. Meanwhile, other investments in the property sector such as high-yielding property trusts and infrastructure assets have also risen.

However, for our retirees and others who rely on interest to supplement their income, low interest rates hurt the bottom line. Unfortunately for retirees, there may be greater need to draw upon super or other savings, the need to work longer (and spend less), or a greater reliance on the age pension. It may also mean greater use of things such as reverse mortgages to un-tap the wealth locked up in housing.

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Australian dollar vs US dollar

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Impact of low interest rates on the Aussie dollarWhile house prices occupy the headlines, lower interest rates are also associated with a lower dollar. This is because international investors look elsewhere for a good return on their investment. This side effect on currencies means that in some instances, globally, central banks have engaged in ‘currency wars’, trying to devalue their currency to make their goods and services cheaper in the international marketplace.

A lower Aussie dollar also means some things are more expensive. You may have noticed this if you do shopping online at an international retailer or your planned overseas trip is getting more expensive. However, it’s not all bad news – domestic tourism operators who should see an increase in tourists. The manufacturing sector will also benefit as Aussie-made products are cheaper for international buyers. And if you have overseas investments, either directly or through a managed fund, repatriating your profits just got more appealing too!

So what should people do now as a result of these low rates?One simple way to benefit from low interest rates is to check your mortgage. Just by making extra repayments you can cut tens of thousands off your mortgage over the course of your loan.

Also consider moving to a fixed-interest loan. They can be less than one per cent higher than variable rates, however keep in mind that the closer the variable and fixed mortgage rate, the more likely (in the bank’s opinion) interest rates will drop again. And make sure you check the terms – some fixed-rate loans don’t allow extra repayments.

In terms of the share market, whilst certain higher yielding stocks look attractive relative to bonds, it’s important to recognise the increased risk in equities.

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DisclaimerThis document has been produced by Risk and Investment Advisors Australia (RIAA) Pty Ltd, ABN 21104922394, AFS Licence No: 238141. The advice provided in this document is General Advice Only. It has been prepared without taking into account your objectives, financial situation or needs. Before acting on this advice you should consider the appropriateness of the advice, having regard to your own objectives, financial situation and needs. If any products are detailed on this document, you should obtain a Product Disclosure Statement relating to the products and consider its contents before making any decisions.

Your RIAA Financial adviser is:

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Is the falling dollar putting a dent in your holiday plans?

Whether you want to immerse yourself in another culture or just escape the winter chill, there are still great holiday destinations where the Aussie dollar goes a long way. You just might have to look a little further afield.

Country Currency % change from

January to August

2015

Azerbaijan New Manat 15.9%

Brazil Real 14.4%

Colombia Peso 7.1%

Turkey Lira 6.9%

New Zealand

Dollar 6.1%

Malaysia Ringgit -0.4%

Mexico Peso -0.8%

South Africa

Rand -1.1%

Canada Dollar -2.2%

Indonesia Rupiah -3.0%

Thailand Baht -4.7%

Euro -5.6%

Fiji Dollar -6.0%

Japan Yen -7.0%

Russia Ruble -9.1%

China Yuan Renminbi

-9.4%

Hong Kong Dollar -13.0%

US Dollar -13.1%

Britain Pound -16.0%

Source: xe.com at 12 August, 2015

One great value destination is Brazil where the Aussie dollar has gained over 14 per cent against the real as South America’s largest country struggles with a slump in agricultural prices and a corruption scandal affecting the state owned oil producer, Petrobras. Although the Rio Olympics are still a year away, between the Amazon rainforest and the amazing beaches, there’s never a bad time to go to Brazil.

If you’re looking for something a little more off the beaten track, the Australian dollar has also soared nearly 16 per cent over the Azerbaijan currency (the New Manat). The former Soviet republic recently devalued its currency by more than a third as it seeks to diversify from its dependence on oil exports. Bordered by the Caucasus mountains and the world’s largest ‘salty’ lake – the Caspian sea, Azerbaijan is also rich in natural treasures and UNESCO world heritage sites.

And of course, don’t forget its northern neighbour, Russia. While the Australian dollar has fallen 9 per cent against the Russian ruble this year, recent political turmoil in Eastern Europe makes Moscow more affordable than in a long time.

Meanwhile, like Australia, most countries which rely heavily on resources and commodities for exports have seen the value of their currency fall. Two such countries are Canada and South Africa, which have remained relatively on par with the Australian dollar in 2015.

A little closer to home, New Zealand’s runaway currency has corrected strongly in 2015. The Aussie dollar has gained 6 per cent on its neighbour this year as dairy and meat exports to China – a strong driver of growth for the Kiwi economy – have plunged.

Outlook for the Aussie dollarIf commodity prices continue to weaken, combined with low interest rate support and a strengthening US dollar, it is quite conceivable that the dollar will head into the US60c’s or even lower.

The lower dollar, however, is already having a positive impact upon tourism, education services and agricultural exports as well as helping to maintain the viability of mining exports despite lower prices denominated in US dollars. All these factors will tend to stabilise our dollar over time and lead to some sort of rebound.