If you're a baby boomer, you've got a big problem when it comes to the investment returns you can expect in retirement: It's the sheer number of other boomers who are also getting ready to leave the workplace and rely on their portfolios to help pay the bills.

That's the depressing conclusion Robert D. Arnott, a portfolio manager, asset-management executive and inveterate researcher, has come to in more than 20 years of studying demographic trends and financial-market results.

The problem in a nutshell: The ratio of retirees to active workers in the U.S. will balloon. As retirees sell stocks and then bonds to support themselves, there will be fewer younger investors to buy those securities, keeping a lid on prices. Meanwhile, strong demand from boomers and a limited supply of workers will boost the prices of goods and services the boomers need.

Arnott is the founder and chairman of Research Affiliates in Newport Beach, Calif. He is well known in the fund world as the portfolio manager hired by Pacific Investment Management to run the Pimco All Asset (PASAX) and Pimco All Asset All Authority (PAUAX) funds, as well as for creating fundamental indexes that weight components by measures such as corporate earnings rather than stock market value.

At age 57, Arnott has a personal as well as professional interest in boomers.

WSJ: When you talk about a changing relationship between the numbers of retirees and workers in the U.S., how dramatic a shift from past decades are we looking at?

Arnott: This very year, for the first time in U.S. history, the population of senior citizens rises faster than the working-age population. Less than 10 years ago, when the baby boomers' kids were coming into the labor force and the very skimpy roster of Depression babies was retiring, we had 10 new additions to the working-age cadre for each one new senior citizen.

It goes to 10-to-1 in the opposite direction in 10 years. There will be 10 new senior citizens for each new working-age citizen. If that's not a political, economic and capital-markets game changer, I don't know what is.

WSJ: How does this changing mix of retirees and workers affect the investment returns that boomers can look forward to over the coming decades?

Arnott: Rates of returns are likely to be anemic and are likely to become more so for those who save later. I'm smack in the middle of the boomers. I was born in 1954. And by the time I reach 65 years old, the prospective forward-looking returns will have to be pretty skinny. That's by the end of this decade.

For U.S. stocks, the history of the last 100 years shows real (that is, inflation-adjusted) earnings and dividend growth of about 1.25% a year. Add that to the current dividend yield and you've got about 3.5% of real return. Add in inflation of, say, 2% or 2.5%, and you're looking at 5.5% or 6% (before inflation) a year.

Now with the interconnected influence of demography, debt and deficits, we're likely to see considerably slower economic growth than in past years. So I view stocks as having a forward-looking return of 5%, give or take, over the next 10 to 20 years.

If bonds are priced to give us, let's say, 2% to 4%, that means your balanced portfolio is likely to deliver 4%. Net of inflation and net of taxes, that's awfully close to zero real after-tax return.

WSJ: Is this payback for an earlier period when a bulge of working-age Americans helped push up investment returns?

Arnott: I never use the word payback. But the Japan stock bubble crested at the end of 1989; our bubble crested almost exactly 10 years later. Their demography is 10 years ahead of ours and worse than ours. The surge in mature workers, people in the 40-to-60-year range, is the sweet spot demographically for stock and bond returns. The surge in that population (in the U.S.) in the '80s and '90s helped to fuel the U.S. stock-market boom in the '80s and '90s, just as it helped to fuel Japan's boom 10 years earlier.

WSJ: Your prognosis for U.S. investors sounds in some ways too simple. And definitely too scary. In retirement, can't I sell my securities to workers in other countries? And won't other countries supply goods and services to boomers, taking some pressure off prices?

Arnott: Absolutely. But it is dangerous to overrely on that. What I'm painting isn't a doom-and-gloom scenario. What I'm painting is a scenario that is challenging, that's difficult. Compared with the '80s and '90s, it is awful. But the '80s and '90s were an extraordinary period.

You still have a lot of people expecting 8% or 10% a year from stocks or even from balanced portfolios. That's naive.

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