Wednesday, 25 May 2016

Each morning I catch a few minutes of breakfast TV. My ears always prick up when I hear Kochie and other commentators announce the “markets review”. But then I grumble about how these segments don’t tell us what I think we really should be hearing.

Every morning we hear about what happened overnight in share markets, commodity prices and currencies, often a sponsor from one of the banks will talk about upcoming economic releases.  

But I would argue that in terms of the financial challenges many of us face in everyday life, this information doesn’t mean much. 

The biggest challenge facing retirees and those close to retirement is how to convert a pool of savings, either in super funds or in other assets, into an income stream which is sustainable and safe. It is this group of people who bear most immediate investment risk.

So what kind of information do I think would help begin to answer some of these questions? My suggestion is to drop the overnight share market commentary and tell us what happened to interest rates, either term deposits or better still annuity rates overnight.  

Here’s why.

If each day you got an update on what your retirement income strategy should be “beating”, I guarantee it will get you thinking. Term deposits are an inefficient alternative to using annuity rates but also serve a similar purpose. There are some annuities which are identical to term deposits (and we know many of our members use term deposits) and almost always the annuity rates will be better.  

Now I know most of you are not interested in purchasing annuities. I am not going to challenge that now but you will hear more from us as this blog continues. Annuities have been used successfully for hundreds of years after all so something must be going on.  

Regardless of what you think of annuities, they represent a baseline for the easiest way to reliably turn capital into income over short and long periods.  

These rates change more than you would guess and at times they are quite attractive – feel free to check this out for yourself. And then let’s get Kochie and others on board so we can get our catch up with a morning coffee and put that overnight Dow Jones performance where it belongs – the middle pages of the newspaper we don’t read!

The thing that many retirees find is that easy and safe interest rates change a lot. Think how much term deposit rates have changed in the last few years. We can all remember rates of 8 per cent plus and now it’s 2 per cent plus. If you would like us to discuss this more – why it happens, how to respond, what alternatives there are (for example does QSuper invest in these types of things and if so which ones and why) let us know and we’ll devote some future posts to it.

The views of the author and those who provide the responses to comments posted on this blog are not necessarily the views of the QSuper Board. We’ve put this information together as general information only and you should get professional advice before relying on this information. 

Past performance is not a reliable indicator of future performance. Each of our investment options has a different objective, risk profile, and asset allocation.