Help, My Parents Have Retired and Seem to Have Problems with Their Money...

LRaif on 24/06/2015 - 12:18

Hey Everyone,

Just hoping for some broad advice here, I just heard my parents are substantially dipping into their savings because interest rates have gone down so much and they are only getting around 2% interest (Each of my parents has an account with around $180,000). If this pattern continued for around 3-4 years things would start to get dire. My parents have been retired for four years and were living off the interest on their super plus some other income sources (= around $400 a fortnight). They own their own home, and have few expenses.

I've suggested that my parents at least put the bulk of their money into term deposits with smaller banks (ME, Bank West, ING) - so they are getting at least 3-3.5% interest per year. I was just wondering if this was the best plan or if anyone could offer some smarter solutions? Any ideas would need to be low risk…

Cheers,

Raif

Financial

Comments

  • tonyjzx on 24/06/2015 - 12:24

    pension?

  • retiredfeline on 24/06/2015 - 12:28
    +3

    Did they take it out of super as a lump sum? They should not have done that, returns are better if they draw an income stream from super. Are they still in a super fund? Find out if they can roll it back in. If the funds were not from super, they can roll it in, provided they are doing a certain amount of paid work.

  • Raif on 24/06/2015 - 13:21

    I agree Greenpossum; I have no idea why they took it out; I was young and thought mum knew what she was doing and my dad readily communicates that he has no idea. I think it would be too late to roll it back in as it was quite a few years ago when it was taken out. I think it was all from a few years back where dad's superfund made little/lost money for a couple years.

    Thanks Tony, they are receiving a part pension.

    • retiredfeline on 24/06/2015 - 13:27

      As long as they are still super members, under 65, and satisfy a condition of work (20 hours paid work within 30 days in a year IIRC), they can roll funds, no matter what source, into the super account. Contact the relevant fund, it doesn't cost to ask.

      • JimB on 24/06/2015 - 16:43

        If you are under age 65, you won't need to work to contribute to super.

        But as they are receiving the Pension you can assume they are over 65. To contribute they employed for at least 40 hours over 30 consecutive days. i.e. at least a part time job.

        If it was my money, I'd put 70% into high yielding blue chip shares (but this isn't personal financial advice)

        No real need to put it back into super as they aren't going to pay personal income tax anyway (may pay CGT later on).

  • c64 on 24/06/2015 - 13:23
    +1

    as you suggested, a good first step would be moving most of the money to ingdirect/ubank high interest account to start off with. an extra 1.5% = ~$2700 extra each year to spend. after that you can work out if/how you want to invest the money better.

  • Cheap Steve on 24/06/2015 - 13:56
    +3

    If your parents leave their money in cash for the next 30 years they can guarantee themselves the following;

    1. Their combined $360,000 will be eroded by inflation and their purchasing power will drop significantly
    2. Their income will fluctuate up and down with interest rate movements
    3. Their income will be low ($360,000 at 2% interest = $7,200 a year to live on)and this purchasing power will also be eroded over time by inflation (real cash rates are already negative at the moment).

    Your parents have to accept that their $360k is going to run down or tighten the belt and learn to live on a low income + Age Pension.

    Even increasing the cash or term deposit rate to 3% won't change the above much.

    The eternal "investor's dilemma" is that you cannot have both high returns and low risk. As your parents have learned first-hand even the safest investment of cash is not always low risk - still subject to pain of falling interest rates and loss of purchasing power.

    Your parents need to be open to investing some of their money in growth assets (eg shares/property) and learn to ride out the ups and downs of the markets.

  • Raif on 24/06/2015 - 14:13
    +1

    Thank you everyone,

    Cheap Steve, that is what I have done personally and what I'm going to talk them about tonight.

    Cheers!

  • jackofspade on 24/06/2015 - 18:00
    +1

    Here's an article you might find useful.
    http://www.smh.com.au/money/planning/retirees-can-break-free…

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