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Higher interest rates are good news for retirees
An important shift is taking place, particularly among retirees and pre-retirees, as their purse strings loosen, and they feel more confident.
This article appeared in the Sydney Morning Herald, The Age, Brisbane Times and WA Today on Sunday 20th August 2023, in both print and digital.
The squeals of cost of living pain from families and first homebuyers are real, as inflation and interest rates both bite hard. But at the same time, an important shift is taking place, particularly among retirees and pre-retirees, as their purse strings loosen, and they feel more confident.
The annual results reported this week by Commonwealth Bank (CBA) chief executive, Matt Comyn showed a renewed sense of optimism and freedom among older Australians with higher interest rates fuelling significantly higher spending and saving for those over 55 in the last quarter.
Could this be the beginning of a period of optimism and newfound freedom for a whole generation approaching and in retirement?
Data in the CBA annual results report showed that among their 15.9 million customers, spending is up close to 5 per cent for the quarter among 55-64s and 6.4 per cent among 65+ in a year-on-year comparison. That’s a huge jump and a large turnaround in sentiment from the years before.
The financial shift was not just seen in spending behaviours, as those in the older bracket also managed to increase their savings significantly in the same period. This is two-pronged progress – increased spending coupled with a hefty growth in savings – and it underscores a remarkable reversal of fortune for pre-retirees and retirees driven chiefly by interest rates and investment returns.
There’s no doubt among any older retirees that this shift has been a long time coming. For nearly 13 years, historically low interest rates have caused enormous pain for a whole generation, forcing people to navigate retirement with restricted investment returns by lowering their cost of living. Interest rates even sat below CPI for several years increasing the anxiety of older consumers, particularly those dependent on superannuation income streams.
But the turnaround, driven by interest rates designed to combat high inflation appears to have a little momentum, even though inflation is expected to hang around for some time. Solid annual results from superannuation funds in 2023, alongside strong dividends from the ASX reporting season should add to the building levels of confidence in over-55s.