Warning: Retirement disaster ahead
The Wall Street Journal reports that a study by Research Affiliates found that returns on stocks and bonds fall short of what big pension funds are expecting.
The Wall Street Journal reports that many Americans are “hurtling towards a retirement disaster” — despite a rally in stock and bond markets. That’s the conclusion of Research Affiliates, an investment management firm.
What’s more, big pension funds don’t know this, according to the article.
The typical big pension fund is expecting to earn 7-8 percent a year. However, the returns estimated by Research Affiliates fall quite short of the expected returns.
Returns from stock funds come from four places: dividends, earnings growth, inflation and changes in valuation. Taking all four into consideration, Research Affiliates estimates a long-term return of 5.2 percent. The picture is worse for bonds, with an estimated long-term return of 2.5 percent.
The bottom line: People will have to save a lot more for their retirement.
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