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Retirement income doesn’t have to be as bleak as the outlook for yield

Faced with plentiful headlines about underfunded pensions or potential changes to the tax system for pension pots, retirees can be understandably confused when all they want is a steady, resilient income stream to fund a comfortable later stage of life. Traditional sources of such income have dried up since the global financial crisis more than a decade ago, and this has been exacerbated by COVID. The policy response from governments and central banks accelerated pre-existing trends and pushed interest rates to previously unthinkable levels as central banks doubled down on using ever-looser monetary policy in an attempt to protect the economy.

Retirees now face very limited options with respect to defensive assets, such as cash and developed market sovereign bonds, which historically have been the go-to allocations. Even high yield corporate bonds now offer very little income. In addition, given the fiscal support for lower unemployment, central banks trying to stoke inflation and the likelihood of pent-up consumer demand being unleashed as we gradually return to normality, there is a reasonably high probability of an inflationary scenario transpiring, especially in the US. Against a backdrop of low yields and possible inflation, we believe the future for fixed income assets and their ability to provide income is bleak.

Casting the net wide

To navigate the environment ahead, we think it is important to cast the net wide and take advantage of a broad multi-asset opportunity set. For example, we see compelling opportunities in high yielding equities whose dividends are underpinned by strong cash flows. As the world recovers and returns to normality, these cash flows can rise, which in turn can fund distributions to investors. Fixed income isn’t completely barren, but it is crucial to be selective, focusing on those yields that are backed by resilient cash flows and compensate for the level of risk taken. Crucially, given the less reliable diversification and returns offered by traditional fixed income assets, the need to manage risk at a portfolio level is paramount.

Delivering a defensive income

For those investors seeking a stable, defensive income stream – often the core objective of retirees – we’d encourage them to look across the whole market for the best opportunities, be flexible enough to take advantage and be able to weather less stable market conditions.

Reliability in an uncertain environment

Given the weak fixed income outlook, and equities reaching ever more lofty valuations that are vulnerable to correction should the road to recovery disappoint, the outlook remains uncertain. For those in retirement, it is important to protect underlying capital and draw a sustainable income from it.


The value of an investment can fall as well as rise and isn’t guaranteed. Your client could get back less than they invest.

Performance and volatility targets are subject to change and may not necessarily be achieved, losses may be made. Past performance is not a reliable indicator of future results. The amount of income may rise or fall. The Fund may invest more than 35% of its assets in securities issued or guaranteed by a permitted sovereign entity, as defined in the definitions section of the Fund's prospectus.

About the author

John Stopford, Head of Multi-Asset Income, Ninety One

John is co-portfolio manager of the Multi-Asset Income strategies and has macro focussed research responsibilities. During his time at the firm John has held senior positions as Co-Head of Fixed Income & Currency, having previously been responsible for the management of our South African fixed income assets from 1998 to 2004.

John joined Guinness Flight in 1993, which was later acquired by our firm, and took responsibility for investments in emerging bond and currency markets. Prior to this, he worked in London and Tokyo as a specialist global bond and currency portfolio manager for Mitsui Trust Asset Management.

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