Retirees face dilemma as cash rates remain on hold
Retirees need to consider diversified fixed income strategies as the Reserve Bank of Australia (RBA) keeps official interest rates on hold for the ninth consecutive month, according to van Eyk Research.
The RBA's decision yesterday to hold rates at 2.5 per cent came as a blow for income-hungry retirees as the yield on some term deposits will effectively be nil after inflation — and equity markets remain volatile, the research states.
Given the cash rate is expected to remain at record low levels for an extended period of time, van Eyk chief executive Mark Thomas said diversified fixed income strategies were an increasingly attractive alternative to term deposits.
"The world is still a risky place and bonds still represent a relatively low risk source of income for retirees and other income-focused investors," Thomas said.
He added that an actively-managed diversified fixed income fund could provide both income and capital preservation with the potential for some capital growth — delivering comparable levels of income to equity income funds and real estate investment trusts but with considerably lower volatility.
"This is important because many people will spend 20 years or so in retirement so they also need some exposure to growth assets to fight inflation and ensure they don't run out of money," Thomas said.
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