Imagine the RBA cuts interest rates to just 1.75% — a new record — next month.
What impact would that have on your finances?
If you're a retiree, or anyone thinking of retiring in the next five to ten years, it'd likely have a negative impact on your lifestyle. Indeed, it'd mean even lower returns on term deposits and savings accounts, the preferred assets of many investors.
According to Superguide, if a couple wanted to live a 'comfortable' retirement they'd need a whopping $1.1 million — assuming they achieve a return of 5% per year from savings! Currently, annual term deposits and savings accounts are offering interest rates less than half that!
Ultimately, Australians are left with a tough choice:
- Magically have more money to retire on; or
- Move further up the risk curve, from safe assets like cash to property or shares
3 fully franked dividend shares every retiree should own
In contrast with the meagre 2% return from interest rate accounts, shares in some of Australia's leading ASX companies offer tax-effective yields in excess of 5%.
- Wesfarmers Ltd (ASX: WES)
Wesfarmers is the $44 billion owner of Coles, Bunnings Warehouse, Kmart and much more. It should be considered a core holding in a share portfolio. Unlike its key rival Woolworths, Wesfarmers' supermarkets and retail businesses are growing strongly in the face of increased competition. When its tax-effective franking credits are included, Wesfarmers' shares are expected to pay a dividend of 7.4%.
- Telstra Corporation Ltd (ASX: TLS)
Telstra is one of the local sharemarket's most reliable dividend-paying companies. Despite investing heavily in its vast mobile network, new products and an international expansion; Telstra's expected to pay a grossed-up dividend of more than 8% in the coming 12 months. In addition, its wide profit margins, dominant market share and international expansion bode well for the ongoing sustainability of its dividend. At its current share price of $5.32, its valuation is also becoming more compelling.
- WAM Capital Limited (ASX: WAM)
Owning a Listed Investment Company (LIC) like WAM Capital is easy since you simply buy shares on the ASX through your brokerage account. One of more successful LICs on the market is WAM Capital. Run by Chairman/Portfolio Manager, Geoff Wilson, WAM Capital's investment portfolio has achieved an average 17.9% annual return since inception in 1999. Although past performance is no guarantee of future returns, there's a lot to like about owning WAM Capital shares over the long-term. Based on last year's dividend payout, shares currently trade on a dividend yield of 7.1% fully franked.
