Christmas is a popular time to retire, on completion of another year of labour. The big challenge for intending retirees is the transition from having a regular salary income to not having one. Setting up a reliable alternative income is essential.

Those considering retiring this year face uncertainties, as usual. Interest rates on bank deposits will decline in 2025 and 2026. There is concern about the possible effects on investments of the re-election of Donald Trump. 

Retirement income can be sourced from many areas. The most common is account-based pensions that are set up using accumulated superannuation. Extra lump sums can also be added from savings prior to arranging the regular pension payments.

Total returns are likely to be five to eight per cent annual long-term average, depending on the selection of conservative or more aggressive underlying investments. If pension payments are drawn at rates no more than earnings the accounts should pay income long term without decline.

Banks are offering up to five per cent per annum on fixed deposits, an easy way to generate retirement income. However that isn’t the best method long term. Interest rates will decline in Australia in time, as they are in other countries.

More importantly term deposits don’t address the inflation challenge. The value or purchasing power of money falls each year by the inflation rate. Each dollar is worth less. If the retiree spends the interest the deposit earns their investment loses value each year. 

Other types of investment deal with inflation and the rising cost of living in retirement better. Account based pensions pay at rates that increase by regulation. The retiree can also vary the payments to suit their needs.

Guaranteed lifetime income streams are available. These are annuities that can be set to pay income indexed to the inflation rate for the whole of a person’s life.  

Investment properties provide regular incomes that rise as rents increase. Major companies usually pay dividends on their shares that increase over the years.

Many retirees will qualify for a full or part age pension. Eligibility is from age 67 and claimants must pass both an assets test and an income test. Investing some savings in guaranteed lifetime income annuities can make retirees eligible for extra age pensions.

Will the re-election of Donald Trump in the US affect Australian investments? While there may be some influences on global trade, serious disruptions appear unlikely. Financial advisers can help develop the optimal retirement income plan. A well-planned income equals a happy retirement