16 November 2016

Inflation is no longer the bogeyman!

Low interest rates and your retirement income

If you are in the retirement age bracket, you’ll remember the days of interest rates at 10% or more. In that long-lost era, a few decades ago, inflation was the No. 1 bogeyman. The government fought to keep it under control while banks competed for deposits by dangling the double-digit interest rates necessary to tempt savers.

 In such a world it was reasonable to build your retirement income strategy around term deposits. And indeed, many people did just that.

 How things have changed. In the low-inflation world of 2016, those who depend on fixed interest and their term deposits now find their returns shrinking each time they re-invest their nest egg.

While retirees don’t pine for the days of double-digit inflation, most would like a bit more investment return. That seems to be a forlorn hope, with central bankers around the world seemingly stuck in a low interest mode. Here in New Zealand, the Reserve Bank is signaling no relief, with another cut to the OCR on the cards.

 Don’t just take our word for it. Here’s Assistant Governor Dr John McDermott speaking on 10 October 2016:

“As described in the September Official Cash Rate (OCR) review, monetary policy will continue to be accommodative. Interest rates are at multi-decade lows, and our current projections and assumptions indicate that further policy easing will be required to ensure that future inflation settles near the middle of the target range.”

Keeping your fingers crossed is not a sound financial plan

It’s pretty clear that keeping your fingers crossed for higher interest rates is not going to bear fruit. You’re then faced with two options – cut living expenses or chase higher investment returns. Neither is an appealing prospect.

But what if there were a third option. What if you could invest your retirement savings in a fund that avoided the low-interest trap but still provided certainty?

The Lifetime Income Fund is based on providing you with reliable income for the rest of your life. The Lifetime Income Fund achieves this by combining investment and insurance to provide an insured income you can depend on.

This can be a useful option for those who have been retired for a few years and are now faced with the challenge of sustaining their lifestyle on the shrinking returns from term deposits and fixed interest.

What about Ray?

Imagine a 70 year-old – let’s call him Ray – with $200,000 to invest. Currently this capital is locked away in assorted term deposits with interest rates that have declined every year since he first retired at 65. Ray is having to trim his living expenses – and he’s not happy about it. But if he were to place that money with Lifetime Income instead, he could receive a payment of $423.08 every fortnight for the rest of his life.

Those last five words – ‘the rest of his life’ – are key. With Lifetime Income, Ray’s fortnightly income is backed by an insurance policy. If he has the good fortune to outlive his original capital, the insurance will kick in and ensure he continues to receive his fortnightly payment, regardless.


The investment is held in Ray’s name by trustees for the Lifetime Income Fund, and invested in a balanced PIE fund. This gives Ray exposure to growth assets in the share market, which have been shown to outperform bank deposits over long periods of time. It’s this combination of investment disciplines and insurance that enables the Lifetime Income Fund to offer higher income.

At 70, Ray and others like him, have had the sobering experience of entering retirement at a time of unprecedented financial turmoil. The crash of 2007 was followed by tremendous uncertainty in global markets, with quantitative easing then acting as a dampener on interest rates.

At a time when they were hoping for secure income, retirees have been faced with lower returns from the ‘safe haven’ of term deposits. But by opting for an insured income from the Lifetime Income Fund, they can enjoy certainty as well as healthy returns.

Disclosures: Martin Hawes is a director and shareholder in the Retirement Income Group Limited, the parent company of Lifetime Asset Management Limited (the issuer of the Lifetime Income Fund) and Lifetime Income Limited (the provider of the longevity insurance policy). He is also an investor in the Lifetime Income Fund. Martin is an Authorised Financial Adviser and his disclosure document is available free of charge at This article is of a general nature and is not personalised advice.