Funding retirement in a low income world

Unfortunately, for today’s retirees, traditional income generating assets such as cash or term deposits are yielding returns that are at all-time lows, and well below the 5% minimum drawdown rate. Luckily for retirees, there is still one asset class that is generating reasonable levels of income. Australian equities Figure 1 plots yields on bank bills and 1 year term deposits. As can be seen, cash is generating the lowest returns ever experienced over the past 35 years. Low interest rates might be good for someone with a mortgage, but it is not good news for a retiree hoping to live off the income generated from term deposits. Whilst interest rates are very low, the yield from Australian shares is still around 6% when one includes the value of franking credits which are refundable in full to pension phase superannuation funds. Figure 1 also highlights that the yield on Australian shares has been remarkably stable over the past 25 years, much more stable than the yield on bank bills or term deposits. (VIEW LINK)