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November 12, 2020 | GSAM Connect

Extending the Retirement Runway

In 2018, for the first year in history, the world saw more people over the age of 65 than under 5.What’s more, Americans are living longer – 73% of healthy 65-year-old couples have a retirement horizon of at least 25 years, and 46% expect retirement to last 30 years or more.2

It’s no wonder that most working-age Americans—80%—fear their savings won’t provide enough income to live on in retirement. And yet, only 37% have a source of protected lifetime income beyond social security.3

Their fears are understandable in today’s low interest rate and equity dividend environment, which has made meeting the common retirement income target of 4% more and more challenging.4 Both dedicated savers and those who have not planned adequately for retirement are at risk of outliving their savings or not having enough income during retirement.

EXHIBIT 1: It Takes More to Generate $40,000 of Annual Distributions

Source: Bloomberg,, and GSAM. “1990” and “2020” refer to January 1, 1990 and January 1, 2020, respectively. Amount needed to generate $40,000 is based on respective yields. The yield for the S&P 500 is the S&P 500 12 Month Dividend Yield. The yield for the 10-Year Treasuries is the Bloomberg US Generic Government 10 Year Yield. No assurance can be given that the client’s investment objective may be achieved. For illustrative purposes only. These illustrative results do not reflect any GSAM product and are being shown for informational purposes only. No representation is made that an investor will achieve results similar to those shown. Indices are unmanaged. Index figures reflect reinvestment of all income or dividends, as applicable, but do not deduct any fees or expenses which would reduce returns. Investors cannot invest directly in indices. The performance results are based on historical performance of the indices used. The result will vary based on market conditions and your allocation. Past performance does not guarantee future results, which may vary.


In the current market environment, it takes a much bigger nest egg to meet the same income goals compared to 30 years ago. In exhibit 1, we compare the investment value across multiple asset classes needed to generate a $40,000 annual income, today and in 1990. An investor relying on dividends from the S&P 500 would need more than $2.2 million saved today compared to $1.3 million in 1990, an increase of 69%. Fixed income investments are even more challenging in today’s low interest rate environment. A $500,000 portfolio of either 10-year treasuries or 6-month Certificate of Deposit (CDs) would have been sufficient to generate $40,000 in 1990. Yet today, those portfolios would need to be as large as $2.1 million or $7.8 million, respectively.

Current circumstances dictate the need for alternate sources of income – and this is where variable annuities may help. In exhibit 1 we can see that for a variable annuity with guaranteed income distributing 5%, an $800,000 investment could pay the same amount of income today as it would have in 1990. In our opinion, that potential to provide a consistent level of annual income is important in today’s rapidly changing world.

The challenges for retirees don’t stop at only needing a larger next egg. Uncertain market returns and decreasing yields mean that retirees face the risk of not having enough income in retirement to meet their lifestyle goals or even outliving their portfolio. Amidst these challenges, almost three-quarters of American workers say income stability is more important than maintaining wealth in retirement.5 Adding variable annuities may assuage these concerns by providing guaranteed income regardless of the interest rate environment or equity market performance, helping to extend the retirement runway. 


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Izabella Goldenberg

Izabella Goldenberg

US Head of Portfolio Strategy, Strategic Advisory Solutions, Goldman Sachs Asset Management

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