(Bloomberg) — Turning 30 just got a lot scarier.
A coming collapse in investment returns means that people that age today will have to work seven years longer or save almost twice as much to end up with the same nest egg as those of roughly a generation ago.
So says the research arm of McKinsey & Co. in a new report that argues that investors of all ages need to resign themselves to diminished gains.
The consulting company maintains that the last 30 years have been a "golden era" of exceptional inflation-adjusted returns thanks to a confluence of factors that won't be repeated. They include falling inflation and interest rates, swelling corporate profits and an expanding price-earnings ratio in the stock market. (Click on the infographic below to enlarge the it.)
The next two decades won't be nearly as lucrative, even on the optimistic assumption that the world economy snaps out of its recent funk and resumes growing at a faster clip, according to the McKinsey Global Institute report titled "Diminishing Returns: Why Investors May Need to Lower Their Expectations."
"We've had a wonderful 30-year period in terms of returns, way more than the 100-year average," said Richard Dobbs, a McKinsey director in London. "That era is coming to an end."
Bond investors have already reaped much of the benefits from declines in inflation and interest rates from the sky-high levels that prevailed in the 1970s.
Tougher road
U.S. and European corporations, meanwhile, will find it harder to boost profits in the face of stepped-up competition from emerging-market rivals and from smaller businesses able to tap into the global market through the Internet, Dobbs said.
