The share market has started 2022 with a fizzle, falling more than 8%. It’s on the back of some concerning economic data.
Inflation is higher than expected, which means interest rate increases this year now seem likely, and it appears omicron has dented business confidence.
So, what does this mean for retirees?
First, the facts
Australians saw prices of goods and services rise by 3.5% in 2021. It is the highest rate of inflation in years, mostly driven by pandemic related economic disruptions, namely high prices for petrol and building materials.
The latest Covid strain, omicron, has negatively impacted on business confidence, which in December dropped to levels not seen since the first Covid lockdown in 2020.
Now, some perspective
But there is nothing unusual here. We know that markets go up and markets go down, especially during periods of uncertainty.
And keep in mind we’re well placed to endure some bad news. Share markets have experienced massive gains since March 2020, with Australian shares rising 68% to their recent highs.
Interest rates are at record lows right now, so even if they increase 2 or 3 percentage points, they will remain low by historical standards. We acknowledge that the latest inflation figures were higher than anyone expected, including the Reserve Bank. It now seems likely that there will be interest rate hikes during 2022, though it’s not a certainty. Remember, the Reserve Bank has said they won’t increase rates until wages rise as well.
Besides, moderate increases in interest rates will be welcomed by many retirees, who are seeking interest on their term deposits.
Covid infection rates are coming down in Australia, and the omicron strain, while highly contagious, is not as severe for most people as previous strains. And consumer confidence has held up well, no doubt buoyed by high household savings and the wealth effect from recent record house price growth.
Implications for retirees
Share market corrections in the short-term are healthy and to be expected. They can also be planned for.
At Daniel Crump Financial Planning we use a framework that is designed to protect your retirement nest egg from the short-term ups and downs of investment markets.
We give you confidence to spend by setting aside several years of income payments, so you have certainty of income in retirement. If you’d like to know more, give us a call.
Daniel Crump is the founder of Daniel Crump Financial Planning. This article is general and does not consider your personal circumstances. If you would like advice specific to you, give us a call.
