Alternatives support reliable income for retirees in low-interest environment: Analyst

With retirees’ most consistent income generator – cash deposits – taking a hit following recent policy rate cuts, listed infrastructure and high-yielding Australian equities could offer a compelling alternative for reliable investment income, according to leading global asset analyst.

Irene Goh, deputy global head of multi-asset at fund manager abrdn, underscored the importance of a diversified approach in income generation, flagging the likelihood of further cash rate cuts from central banks in Europe and the UK and the US Fed.

“Equities can be a valuable source of income,” Goh said in a recent commentary piece. “Australian equities, in particular, offer an attractive yield spread compared to global equities, enhanced by the franking credit system of taxation.

“Additionally, global high dividend equities and fixed income assets can contribute to income solutions too.”

Goh, in particular, rates listed alternatives, including listed infrastructure companies in the renewable energy space, as an effective vehicle for differentiated income, particularly with the ongoing decline of cash income, being reasonably well-insulated from wider economic trends.

“Listed alternatives are important as they can provide access to differentiated income streams with lower dependency on economic trends. These may include infrastructure, specialist property, precious metals, royalties, renewable energy, and special opportunities.

She said the fund manager maintains a “flexible asset allocation to stay nimble on equities, and we remain positive on duration assets such as bonds”.

Rate cuts still forthcoming

Goh forecasts a soft landing this year as the “base case… characterised by moderating economic growth and inflation slowly returning to targets in developed countries”. This will likely compel central banks to lower interest rates even further.

She predicts the Fed will cut rates at least two more times this year, beginning in September, with the ECB and Bank of England likely to cut late this year as economic growth slows.

Income from cash deposits is thus likely to take a significant hit this year, with returns already barely keeping up with inflation, “exposing many savers to very low returns”.

With the Reserve Bank of Australia’s (RBA’s) February cash rate cut, from 4.35% to 4.10%, interest rates on online savings accounts now typically yield less than 2%, Goh said.

In the US, cash-based returns are even less fruitful. “Compared to inflation at around 2.5% in January 2024, returns on bank online savings accounts are substantially lower, and averaged just 1.75% in January 2025, down from over 2% a year ago. Bank one-year term deposits rates averaged a little more at 3.35% per annum, well below around 4% a year earlier, so the real return on cash deposits is negligible,” Goh said.

In current economic climes, the Hong Kong-based analyst sees a diversified approach – one that embraces global equity, global bonds and listed alternatives – as a compelling means of ensuring stable and consistent income beyond cash.

“By strategically allocating to alternative asset classes and employing active management techniques, retirees can aim to achieve a consistent and reliable income stream in a low-rate environment.”