According to Fairfax press, the Association of Superannuation Funds of Australia believes the average retired couple will need $58,784 per year to fund a "comfortable" lifestyle.
Unfortunately, the aged pension would pay just $34,000 a year, so there's a funding gap which needs to be made up by pensioners.
Pensions are based on the assumption people can earn between 4% and 5% on 'defensive' investments. Therefore, a retiring couple would require a balance of around $600,000 to make up the difference, according to Reece Birtles chief investment officer, Martin Currie.
Risking low yields
However, it's been apparent for some time that interest rates will stay low for the foreseeable future. Interest rates are the backbone of 'defensive' investments like term deposits and bonds.
Australian, U.S. and European bonds are at record lows, and term deposits at a major bank currently yield less than 3%.
Therefore, the 'funding gap' noted above is currently worse for retirees than the aged pension assumes. This leaves retirees in a very tough position; they have to choose between making 'riskier' investments (shares, property, etc.) with higher potential returns, or save up a much larger combined balance to offset the lower yields.
Unfortunately, growing a larger retirement nest egg doesn't just happen overnight, so many Australians are finding themselves looking towards the sharemarket for higher returns.
Despite the obvious short-term risks, dividends of 5% per year appear readily obtainable over the long-term.
5 retirement-ready blue chip dividend stocks
Here're five ASX blue chip dividend stocks investors readily will consider to offset low-interest rates.
- Wesfarmers Ltd (ASX: WES) – dividend yield: 5.23% fully franked. Wesfarmers is the owner of popular retail names like Coles, Bunnings Warehouse, Kmart and more.
- Telstra Corporation Ltd (ASX: TLS) – dividend yield: 5.5% fully franked. Telstra boasts one of the most reliable dividends on the ASX and is quickly growing its presence in Asia.
- BWP Trust (ASX: BWP) – dividend yield: 5.3% unfranked. BWP Trust owns properties which are leased to reputable companies like Bunnings Warehouse, and other large retail stores such as Harvey Norman Limited (ASX: HVN).
- Cochlear Ltd (ASX: COH) – dividend yield: 2.4% fully franked. Cochlear is a global hearing aid developer, and what it lacks in dividend yield it makes up for with growth potential.
- Premier Investments Limited (ASX: PMV) – dividend yield: 3.93% fully franked. Premier Investments is an extremely well-run retailer, is cashed up and boasts rapidly-growing brands such as Smiggle.
Buy, Hold or Sell
It's true, shares are riskier than many other forms of investment. However, if you're prepared to invest for the long-term (five years or more) and go about your stock selection prudently, I believe it's the best way to grow your retirement nest egg.
Of the five companies above, I'd happily recommend each company to long-term investors at the right price.
