The hidden burden of low interest rates

When interest rates fall

When interest rates fall, it’s generally reported as a good thing. All those homeowners getting a break on their mortgage, the money freed up by falling rates flowing into the economy through improved retail sales and greater demand for services.

There is, however, a dark side to falling interest rates. There are now more than 1.9 million Australians aged 65 years and over who either partly or fully self-fund their retirement. Many of these older Australians live on on the interest generated by cash investments. With interest rates in Australia at historic lows – and predicted to fall further – retirees are feeling the squeeze.

As outlined on the ABC’s 7.30 Report last night, life is getting harder for millions of Australians who rely on the return from their savings.

According to Wayne Strandquist, who volunteers with the Association of Independent Retirees, many of his peers are struggling with lower interest rates:

“People who thought when they retired 10 years ago that they put a chunk in term deposits expecting it would give them a reliable income at a say 5 to 6 percent return but they are now finding it at 2 percent, that they don’t have enough money to live.”

Some of the retirees profiled by 7.30 are looking at more radical ways to improve their retirement income, such as day trading. Such strategies are fraught with risk and for the novice, could result in significant losses.

There are other options for those retirees struggling to make ends meet in a low-interest rate environment. Responsible access to home equity is one of those options.

Using Home Equity to Top Up Super

Home equity can be used to top up super or other investments to increase retirement income. It can also provide contingency funding or be used to renovate the home.  To see how your home equity could help improve your retirement funding, click here.