Farrell: Should you worry about the prospect of low investment returns?

I'd like to take a step back from current market and economic turmoil to raise a longer-term financial concern that is getting increased attention.

Are we entering a period of low expected and realized investment returns for savers, such as future retirees with their 401(k)s and IRAs? If so, what are the implications?

The logic behind the concern is compelling. Investors have done incredibly well over the years, but it becomes harder to earn high realized returns with equity market valuations so high and interest rates so low (despite the recent rise in rates and equity market volatility).

Antti Ilmanen, principal and global co-head of the Portfolio Solutions Group at the famed quantitative shop AQR Capital Management, investigates the issue in a well-timed new book, "Investing Amid Low Expected Returns."

Here is the key sentence that summarizes the theme of his detailed and thoughtful money-management exploration: "Historically low bond yields and high asset valuations point to a low expected return world."

The concern isn't abstract.

Take the research report by the investment data firm Morningstar, "The State of Retirement Income: Safe Withdrawal Rates." The Morningstar authors calculate that the safe withdrawal rate is now 3.3% since valuations are so high. Returns going forward will pale in comparison to the past. For many years, the standard advice was that retirees could safely withdraw 4% plus an adjustment for inflation out of their retirement savings annually.

To be sure, the argument that we're moving into a long period of low expected returns is a forecast and, like all predictions about the long term, highly uncertain. Nevertheless, Ilmanen, the Morningstar report authors and others have made a strong-enough case that retirees should take the risk seriously.

That said, I would steer clear of reaching for higher returns by investing in junk bonds, commodity futures, real estate funds and private equity. These investments are too risky for the typical worker saving for retirement, and fees with alternative investments way too high.

The big implication: Everyone needs to consider saving more for their retirement. The risk of low returns in the future also argues for delaying filing for Social Security to boost the benefit (if practical, although it isn't for everyone) and working longer (again, assuming it's possible).

Even managing to save a little extra over the years is taking out an insurance policy that the low expected return forecasters predict turns out to be right.

Chris Farrell is senior economics contributor to American Public Media's "Marketplace" and a commentator for Minnesota Public Radio.