January 11, 2016
The long-practiced strategy of generating retirement income from U.S. Treasury investments (i.e., bonds) is in danger of being reduced to irrelevance because of the Fed’s low rate policies.
A recent study shows that retirees now need more than $1 million in retirement savings to get half their income from low-risk Treasury investments.
Back in the 1990′s, it used to take roughly $300,000 (inflation-adjusted) to achieve that goal. And as the study points out, in 1981 nearly a third of retirees pulled half or more of their income from Treasury investments.
Some other highlights include:
- 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
- Low interest rates and weak personal income growth result in inadequate savings that foreshadow inadequate post-retirement income for many households
This chart tells quite a story:

As you can see from the above chart, it adds up to retirees having to save four times more than they did 40 years ago! In practice, it’s more likely they haven’t saved enough and instead assumed a lot of risk to fund their retirements.
It’s pretty simple, if you can only pull marginal income from Treasury investments in retirement, you either have to save a lot more or take on risk. And for that we can thank the Fed’s policies.
Though rates increased and are projected to go up more, it will take huge jumps for Treasury investments to become attractive again. That means risky investments will likely continue to be far too prominent in most retirement portfolios.