1. RUSSELL DEW FINANCIAL SERVICES

2. LIVING IN RETIREMENT WITH LOW INVESTMENT RETURNS

3. Living in Retirement with Low Investment Returns
Living in Retirement with Low Investment Returns The Impact of Low Inflation
Inflation has a major impact on the actual returns you can expect across various investment sectors

4. The Impact of Low Inflation
- Currently we are experiencing low and sometimes negative inflation across the Western World including in Australia

5. The Impact of Low Inflation
WORLD OVERVIEW

6. The Impact of Low Inflation

7. The Impact of Low Inflation
Normally over the medium to longer term the returns in each sector should have the following relationship to inflation

8. The Impact of Low Inflation
Expected Future Returns:
Term Deposits = Inflation plus 2-3% Property = Inflation plus 3-4% Shares = Inflation plus 4-5%

9. The Impact of Low Inflation
Currently the Australian Inflation rates are around % which is below the Reserve Bank target range of 2-3%

10. The Impact of Low Inflation
In the December 2015 quarter inflation recorded negative growth of 0.2%

11. The Impact of Low Inflation
- That means on the average basket of consumer goods inflation actually fell by 0.2%

12. The Impact of Low Inflation

13. The Impact of Low Inflation

14. The Impact of Low Inflation

15. The Impact of Low Inflation

16. The Impact of Low Inflation

17. New Expected Investment Returns
Term deposits in Australia are currently falling in the range of 2-3% per annum which reflects lower inflation expectations

18. New Expected Investment Returns
Real world interest rates after inflation are about 0% which is close to no real return from bank deposits

19. New Expected Investment Returns
- In Australia, the real return on term deposits is only around 1% and if you are taxed on this income then the real return could be less than zero

20. New Expected Investment Returns

21. New Expected Investment Returns

22. New Expected Investment Returns

23. New Expected Investment Returns

24. New Expected Investment Returns
- Commercial property returns should also trend down to around 4-6% per annum

25. New Expected Investment Returns
- Share investment returns could also decline to around 6-8% per annum

26. New Expected Investment Returns
In the future many of these returns could come from the dividends
Income payments from shares are currently around 4.6% in Australia

27. New Expected Investment Returns
This means that even without any capital growth in share values we could double the income you receive from term deposits

28. New Expected Investment Returns
Australian Dividends are the highest in the developed world and we are paying out 70% of all profits being generated per year to you, the shareholder

29. New Expected Investment Returns

30. New Expected Investment Returns

31. New Expected Investment Returns

32. New Expected Investment Returns
The result of these lower return expectations is that a Balanced Fund could now only achieve a less than 7% return if low inflation persists

33. New Expected Investment Returns

34. New Expected Investment Returns
Therefore these lower returns could start to negatively impact on your accumulation of earnings and your ability to build up assets for retirement

35. New Expected Investment Returns
or on how much income a retirement portfolio could generate over the longer term

36. New Expected Investment Returns
In retirement this could mean your funds could decline at a quicker rate if your income drawings rate exceeds earnings

37. New Expected Investment Returns
- This lack of returns on your investments could completely expire before the end of your retirement

38. New Expected Investment Returns
Rising Australian Life Expectancy

39. New Expected Investment Returns
Male Life Expectancy and
The Age Pension Eligibility

40. New Expected Investment Returns
However, investors will benefit from a slower decline in the real value of their investments

41. New Expected Investment Returns
Over ten years even with a 2-3% inflation rate, your investments will buy 20-30% less assets

42. New Expected Investment Returns
The Westpac living standard survey for a single person in retirement states that $42,893pa is needed to live comfortably in retirement

43. New Expected Investment Returns
- and a couple needs $58,922pa to live comfortably in retirement

44. The Issue of Long Life Expectancy
An average person spends years in retirement, therefore low inflation can help the real buying power of your investments

45. Rebalancing Your Portfolio of Investments to Improve Returns
So, how can we enhance the returns for living in retirement from the available investments without taking on more risk?

46. Rebalancing Your Portfolio of Investments to Improve Returns
One option is to make money by selling out of sectors that are going up in value and buying into sectors that are falling in value

47. Rebalancing Your Portfolio of Investments to Improve Returns
- This is what your multisector funds are doing every year by rebalancing back to the benchmark weightings

48. Rebalancing Your Portfolio of Investments to Improve Returns
This method can add up to 1.0% per year in additional returns by selling and realising a capital gain

49. Rebalancing Your Portfolio of Investments to Improve Returns
which then could be paid out as an income in each half yearly distribution.

50. Income Generated from your Investments
- The twelve months income on the following funds are: Balanced = 5.25% Growth = 5.75% High Growth = 6.25%

51. Income Generated from your Investments
This extra income can then add to the total income received from the following:

52. Income Generated from your Investments
Interest from Government bonds (Coupons)
Rent from properties
Dividends from shares

53. Average Income for Balanced and Growth Portfolios Over Ten Years
RETURNS Per Annum
Balanced Fund Income = 6.2%
Growth Fund Income = 6.75%

54. Rebalancing Your Investment Portfolios
This strategy of rebalancing to sector benchmark has been particularly effective in world share markets

55. Rebalancing Your Investment Portfolios
because they have greater value movements to enhance the capital gains potential.

56. Rebalancing Your Investment Portfolios

57. Rebalancing Your Investment Portfolios
This strategy has worked for many world share markets even when there have been long periods of no capital growth e.g.

58. Share Market Values Going Sideways
When there have been times where share markets have not grown in value over long periods

59. Share Market Values Going Sideways
Australia USA Britain France Germany Japan New Zealand Hong Kong

60. The USA Share Market Values Since 1992
USA Standard & Poors
Share Index

61. The USA Share Market from 1920

62. The Longer Term Value from Share Markets
The other benefit of investing in the world share markets is that their profits and dividends rise over time at a greater rate than inflation

63. Generating a Rising Income Throughout Retirement
This benefit is particularly important for retirees who need to generate a rising income over years of retirement

64. Generating a Rising Income Throughout Retirement

65. Interest Rates in Australia
Even though Australia has been seeing the lowest interest rates for 150 years

66. Interest Rates in Australia
- We still have some of the highest interest rates in the Western World

67. Overseas Interest Rates
Many countries have negative interest rates – for example Denmark, Switzerland, Germany and Japan

68. Graph Bonds go negative

69. Australian Inflation and Interest Rates
Hopefully Australia will not see this happen even though we had a negative 0.2% inflation rate in the December 2015 quarter.

70. Australian Inflation and Interest Rates
A continuing negative inflation rate means that you will get less capital back on maturity of your bonds.

71. Australian Inflation and Interest Rates
- However, you will still get interest payments from the bonds through to the date of maturity

72. Australian Inflation and Interest Rates
This occurs in situations where inflation is negative

73. Australian Inflation and Interest Rates
So if inflation is -2% and your earnings rate is
-1% then you are earning a real interest rate of 1%

74. Conclusion
So the old rules of diversification to reduce risk are true
Plus diversification adds a growing income over time

75. Conclusion
- and in these times of low interest rates your diversified funds are producing around double the income of Term Deposits

76. Conclusion
In addition you also receive some tax credits from Australian companies (franking credits)

77. Conclusion
Low Inflation does not preclude a real return that covers the cost of living in retirement

78. Conclusion
In the past, high inflation depreciated the real value of your investments

79. Conclusion
Today we have to consider that even though the real returns are lower; your investments will last longer

80. Conclusion
because their value to buy your living needs is not being depreciated as in the past

81. Specific Advice Warning
The examples in this presentation are illustrative only and are not an estimate of the investment returns you will receive or fees and costs you will incur.

82. General Advice Warning
This seminar contains information that is general in nature. It does not take into account the objectives, financial situation and needs of any particular person. You need to consider your financial situation and needs before making any decisions based on this information. If you decide to purchase or vary a financial product, your financial adviser, Russell Dew ph. (02) and other companies within the AMP Group may receive fees and other benefits. The fees will be a dollar amount and/or a percentage of either the premium you pay or the value of your investments. Please contact us if you want more information

83. This seminar is presented by Russell Dew Director of Trading As The Dew Family Trust, which is a Corporate Authorised Representative and Credit Representative of Charter Financial Planning Limited, Australian Financial Services Licensee