An ALTERNATIVE Approach to Retirement Planning

The responsibility for retirement outcomes has drastically shifted away from institutions and to individuals. From 1998 to 2017, the percentage of employers offering a traditional defined benefit plan to newly hired employees fell from 50% to around 3%.1

For wealthy retirees, Social Security benefits alone can only replace a small percentage of their pre-retirement income. A Congressional Budget Office study2 found that Social Security has a median replacement rate of 21% for those earning $141,900 and more per year. Reaching the replacement rate target can be very difficult for high earners, even for those with large retirement portfolios, especially in today’s historically low interest rate environment. Retirees who spend-down their portfolio may outlive their assets or eliminate the possibility of leaving a bequest.

Retirement income is typically generated using income-producing investment strategies such as fixed income, which may be vulnerable to credit risk and duration risk. More importantly, low current yields and the impact of inflation on real returns are two problems associated with relying on traditional asset classes for significant sources of retirement income. By contrast, alternative investments may provide the enhanced yields wealthy retirees require to maintain their pre-retirement consumption patterns. Alternative investments can also provide income diversification, so the retiree is less dependent upon the viability of a single insurance company or exposed to the duration risk inherent in traditional fixed income instruments. Additionally, modern advances in closed-end fund (CEF) design have made institutional alternative investments easily accessible to individual investors.

Click here to access XA Investments Alternatives in Retirement White Paper.

Income Comparison of Traditional Investments

* CAT Bond yields as of 12/31/2018 based on available data.

Sources:; JP Morgan CLOIE;;; Bloomberg;

Past performance is no guarantee of future results.

The information in this article is for informational and educational purposes only and does not constitute legal, tax, investment or other professional advice on any subject matter. Further, the information is not all-inclusive and should not be relied upon as such. Illiquid investments are designed for long-term investors who can accept the special risks associated with such investments. An investment in illiquid investments involves risks, including loss of principal. CEFs frequently trade at a discount to the fund’s net asset value. An investment in CEFs involves risks, including loss of principal. Investors considering an allocation to alternatives should evaluate the associated risks, including greater complexity and higher fees relative to traditional investments. Investors should carefully weigh the diversification benefits, expected returns and volatility of alternatives relative to traditional investments. Investments in alternatives involve risks, including loss of principal. Performance data quoted represents past performance. Past performance does not guarantee future results. Current performance may be lower or higher than performance data quoted. Diversification does not eliminate the risk of experiencing investment losses. You should not use this article as a substitute for your own judgment, and you should consult professional advisors before making any investment decisions. This article may contain “forward looking” information that is not purely historical in nature, including projections, forecasts, estimates of market returns, and proposed portfolio compositions. There is no guarantee that any forecasts will come to pass. This information does not constitute a solicitation of an offer to sell or buy any specific security offering. Such an offering is made by the applicable prospectus only. A prospectus should be read carefully by an investor before investing. Investors are advised to consider investment objectives, risks, charges and expenses carefully before investing. Financial advisors should determine if the risks associated with an investment are consistent with their client’s investment objectives.

1McFarland, Brendan. “A Continuing Shift in Retirement Offerings in the Fortune 500.” Willis Towers Watson,


2“Social Security Replacement Rates and Other Benefit Measures: An In-Depth Analysis,” 2019.