Designing Efficient Income for Life

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What You Need to Know

With less-than-inspiring prospects for market returns, investors face a stiff challenge in generating efficient income while still bestowing a legacy at the end of retirement. Reaching beyond traditional market building blocks to embrace annuities’ income-generating power could go a long way toward tackling the income challenge.

Annualized growth rate
expected for a 60/40 balanced portfolio of stocks and bonds over the next 10 years
Expected annual lifetime retirement income
from a balanced portfolio when keeping plan failure risk below 1%
Expected annual lifetime retirement income
from a 50/50 VA and balanced portfolio blend when keeping plan failure below 1%

As the path back from the depths of the COVID-19 pandemic continues, accompanied by massive stimulus measures, markets have generally fared well. As the recovery progresses, however, eventually the return-to-normal trade will fully play out.

At that point, the same issues that existed before the pandemic will remain, only more acute because stimulus has pulled returns forward in time. In this case, the capital markets landscape will put a strain on traditional investment strategies—and income investing won’t escape the pitfalls. What investors do next will go a long way toward determining success or failure in securing income and legacies.

Capital Markets Headwinds Are Intensifying

As we look out over the next decade, we see three secular headwinds—changing demographics, deglobalization and high debt levels—converging (Display). In our view, this combination will slow economic growth and make investing—whether it’s for income, growth or a combination of the two—much more challenging in the years ahead.

Secular Headwinds: Demographics, Deglobalization, and Debt Burdens
A falling working-age population, slowing world trade and rising government debt

Past performance does not guarantee future results.
Through December 31, 2020
Source: Bloomberg, Department of Labor, Federal Reserve FRED database, Haver Analytics, World Trade Organization and AllianceBernstein (AB)

A rising tide of globalization has made world trade a support pillar for economic growth and wealth creation for many years. Recently, though, that tide has started to ebb, driven by wide-ranging factors including rising wages in emerging markets (including China), resurgent populism and trade wars, and the desire to balance risk management with cost savings as a result of COVID-19-related global supply-chain disruptions.

Finally, the debt burden of the world’s major economies has exploded. In the wake of the global financial crisis, the ratio of sovereign debt to gross domestic product topped 100%; that load is now approaching 140%. Not only does a growing pile of debt divert more of government budgets to servicing debt, it also ties the hands of central banks as they seek to manage inflation and growth.

Past performance, historical and current analyses, and expectations do not guarantee future results.

The views expressed herein do not constitute research, investment advice or trade recommendations and do not necessarily represent the views of all AB portfolio-management teams and are subject to revision over time.

Investment involves risk. The information contained here reflects the views of AllianceBernstein L.P. or its affiliates and sources it believes are reliable as of the date of this publication. AllianceBernstein L.P. makes no representations or warranties concerning the accuracy of any data. There is no guarantee that any projection, forecast or opinion in this material will be realized. Past performance does not guarantee future results. The views expressed here may change at any time after the date of this publication. This article is for informational purposes only and does not constitute investment advice. AllianceBernstein L.P. does not provide tax, legal or accounting advice. It does not take an investor's personal investment objectives or financial situation into account; investors should discuss their individual circumstances with appropriate professionals before making any decisions. This information should not be construed as sales or marketing material or an offer of solicitation for the purchase or sale of, any financial instrument, product or service sponsored by AllianceBernstein or its affiliates. This presentation is issued by AllianceBernstein Hong Kong Limited (聯博香港有限公司) and has not been reviewed by the Securities and Futures Commission.

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