A new research note from S&P Capital IQ and SNL says that retirees seeking to get by on fixed-income investments can no longer do so without a bigger pool of investments to provide that fixed income.

According to the research, retirement savings now need to be nearly four times larger than what was required 40 years ago to generate the same level of low-risk inflation-adjusted investment income.

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In addition, the situation isn’t likely to change.

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Low interest rates and weak personal income growth have combined to provide retirees with the double whammy of inadequate savings and fixed-income investment returns, meaning that postretirement income for many households will be inadequate.

Research found that retirement income generated by the 10-year Treasury note in 1976 equated to 16.4 percent of median household income that year, rose to a high of 31.3 percent in 1981 and then began a steady multidecade decline, reaching a nadir of just 3.4 percent of median household income in 2012.

While the situation improved slightly to 4.7 percent in 2014, the study’s metric projected another decline in 2015, to 3.9 percent.

The report said, “Each year’s investment income has averaged 13.3 percent of median household income between 1976 and the projected 2015 value. Based on the 40-year average figure, principal invested in 2015 would need to increase by more than 600 percent … in order to generate … 13.3 percent of household income….”

Not only does the return on fixed-income investments prove inadequate over the last several years, the research says, “[t]he plight of modern-day retirees is actually much worse than these face-value comparisons with earlier decades might suggest because employees have steadily migrated from defined benefit employer-funded pension obligations toward self-directed defined contribution individual retirement arrangements and 401(k) accounts.”

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Retirement investment income in earlier decades, it continued, “would only be supplementing primary defined benefit and social security benefits, which would provide a comfortable standard of living for retiring senior citizens.”

As a result, risk-averse investors not only need to save much more, they need “stronger personal income growth” to be able to save at such an increased pace and also “need enough excess investment principal to act as a buffer against the corrosive portfolio effects of future consumer price inflation.”

Instant Insights /

Investment-grade fixed income won&rsquo;t pay for retirement

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Investment-grade fixed income won’t pay for retirement