Assuming the following;

• Your health and lifestyle are under control
• You have secured your debt free accommodation
• You have sufficient retirement savings which are properly managed, then

You shouldn’t be to concerned about your retirement prospects.

That is unless you live anywhere but Australia!

Consider these facts;

Australia’s current credit rating is AAA, with a cash rate of 4.5%.  Our current inflation rate is 3.6% and our country ‘risk rating’ is 10th in the world.

America’s credit rating is AA+ with a cash rate of 0.25%.  They have an inflation rate of 3.9% and their country ‘risk rating’ is 17th.

The UK’s credit rating is AAA and they have a cash rate of 0.5%.  They have an inflation rate of 5.2% and a ‘risk rating’ of 16th.

China has a credit rating of AA- and a cash rate of 6.5%.  Inflation at 6.1% and a ‘risk rating’ of 36th.

Real Rate of Return

The real rate of return on investment is the most significant benchmark, particularly for retirees.  In simple terms; it is the ‘net’ return on your investments after inflation, income tax and fees.

In other words, it is what you are left with as ‘clear’ profit on your invested capital.

If we apply this information across the facts highlighted above, we note that Australia’s real rate of return on the cash rate alone by far outweighs the major economies of the world. Keep in mind that this is just the cash rate.  Term deposit rates produce a significantly higher outcome.

This positive return on domestic cash has been the case for some years, and is likely to remain the case for some years to come.

Why?

The reasons for this are many and far more complex than I’m about to discuss here.  However in simple terms; Australian economic strength has been able to withstand relying on monetary policy to create economic incentives.  Our inflation rate is higher than the government would like, but at the same time it is propping up the RBA cash rate.

Of course as we have witnessed over the recent years, political, economic and global circumstances can change in a heart-beat and impact suddenly and dramatically on current and future Government policy.

So why don’t the economies of the world invest in Australian deposits and Bonds?

Well in actual fact; they do!  This is one of the reasons our dollar is currently so strong.  However, for individual overseas investors there are three main reasons for not doing so;

• They are not aware or informed of this opportunity
• There is a currency risk associated with investing in assets overseas
• There are various tax implications depending on the country of residence

Retiring outside Australia

Retirement savings are at significant risk as a result of market interest rates being below the inflation rate.

Some countries such as Switzerland are now charging fees to take deposits – No interest!

Pension funds all over Europe are in diabolical strife as a result of a whole range of disasters; debt, banks, share markets, currency pressures just to name a few.  America is not faring much better, whilst Japan and China also have problems of their own.

The CEO of the largest bond trading company in the world PIMCO, was recently quoted as saying in a recent interview; ‘I would not be concerned about the rate of return on my capital, I would rather be concerned about the return of my capital.’

Our banking and financial sectors, including superannuation are highly regulated and for most part very consumer aware.

We are unlikely to suffer the fate of uncontrolled greed which started the GFC and to a large extent still continues to have an effect on some US and European banks.

Australia is in a better position than most to survive and adjust to future financial woes that may present themselves.

I have no doubt that share values will recover amd continue to provide long-term growth, which is the purpose of that asset class within a well diversified portfolio.

It is also worth noting that Australia has recently been voted the second best country to live in, with Melbourne being the most liveable city in the world.

I am glad to be involved in the retirement planning profession here in Australia, as I would find it hard to put a positive spin on this sector anywhere else in the world.