The latest Household Financial Comfort Report (HFCR) from industry super fund-owned bank, ME shows financial wellbeing among baby boomers has taken a hit in the last six months. We take a look at what’s driving the boomers’ concerns.
The first half of 2016 saw an important shift in the financial confidence of Australian households. Financial comfort took a tumble across most households during the period, but the biggest decline – a drop of 7% – occurred among baby boomers (Australians aged 50-74).
Falls in wealth and net income dent confidence
Boomers’ drop in financial confidence reflects a trifecta of factors.
First, historically low interest rates are eroding returns on term deposits – an investment typically favoured as a source of income by empty nesters and retirees.
In addition, Australian shares, which often comprise a large chunk of superannuation investments, have delivered lacklustre capital growth in the past year, impacting the final nest eggs of pre-retirees and retirees alike.
On top of this, changes to super and other policies set out in the 2016/17 Federal Budget adversely impacted the expected comfort of the boomers.
Now’s the time to take stock
With the Federal Election behind us, now could be the time for pre-retirees and those already in retirement to take stock of their household’s fiscal health.
One on hand, interest rates are at record lows and look likely to stay that way for some time. For boomers with cash on deposit, this makes it more important than ever to shop around for a competitive return on savings. Don’t assume the bank you traditionally use is offering the best returns on your money.
It’s worth remembering too: the flipside to low interest rates is unexpectedly low inflation, which currently sits at just 1%. In fact, the cost of some goods and services has fallen. In the June 2016 quarter, for instance, the cost of domestic holiday travel dropped by 3.7% – good news for boomers with plans to explore Australia.*
Perceptions can be different from reality
It is critical for those in or approaching retirement to take a clear look at their finances. While boomers reported greater perceived stress with income, cash savings and net wealth, the six months to June 2016 saw this demographic continue to make gains in actual income and household wealth.
Moreover, as many as 45% of baby boomers said they expect to be worse off after the recent Federal Budget, yet the proposed changes to superannuation will impact only a small proportion of retirees with very high levels of super savings.
The good news is that the HFCR found boomers are among the most financially comfortable of any household life stage, and with careful management, Australia’s over-50s should be able to hold on to that title.
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*ABS Cat 6401.0 - Consumer Price Index, Australia, Jun 2016, http://www.abs.gov.au/ausstats/abs@.nsf/mf/6401.0