'Something has got to give': The way people save for retirement needs to change

Right now it can be hard to feel comfortable with how much you’re saving for retirement.

Corporate bond yields are hitting lows not seen since Elvis was getting his start. US Treasury bonds have hit all-time lows. A statistic going around Friday from Bank of America Merrill Lynch showed that a it would take 107 years to double your savings in a 1-year US deposit account, 1,387 years in a German account of the same type, and 6,932 years in a similar Japanese account.

Investors across the board are worrying about just how much they will be able to make. Some people even think low returns mean we could be headed for a retirement crisis.

They may be right to worry, said Steve Wood, chief US equity strategist at Russell Investments. Low returns have changed the game. Instead of just worrying, however, Wood said investors need to do something about it.

Wood told Business Insider that there are essentially two dials that investors can work with to increase returns when saving for retirement: risk and spending. To Wood, if you’re not getting the returns you need to meet your benchmark, you can either turn down the spending dial and increase the amount you’re investing or turn up the risk dial to get higher returns.

“Some people prefer to turn down the spending knob and conserve and contribute a bit more,” said Wood. “Sometimes you don’t want to [turn down spending], so investors have to stomach a little bit more risk to meet their goals.”

Now, in the low-return environment, investors will have to choose if they want to get the same amount of money back.

“Something has got to give,” Wood told Business Insider. “[Investors] are likely to be in a portfolio, or investment profile that they wouldn’t have anticipated 10 to 15 years ago.”

Simply put, investors can’t expect the same mix of stocks and bonds to cut it any more. Wood believes that taking advantage of short-term volatility in markets and diversifying further outside of the US is the best strategy to increase returns.

While Wood is to an extent advocating for more active management, as he is an active manager himself, it is a fair assessment that perhaps some of the dials must be shifted to find higher returns given current conditions.

Wood also touched on another thing investors have to consider for their investments: cost. Wood specifically called out low-tax strategies as a way to improve total return, but lowering costs can also come in the form of smaller management fees as well.

Any way you slice it, the fact remains that people can’t invest the same way they always have and expect the same level of results.

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