A much more difficult return environment than investors have experienced in recent decades could be a particular challenge for retirement investors.

Compared to the last 10 years, we forecast slower real economic growth, stubbornly high inflation and greater volatility over the next decade.

The result will likely be lower profit margins and lower returns for the broad equity market. Bonds are likely to be more volatile as this happens, making them less effective in counteracting the volatility of stocks.

At the same time, higher and more volatile inflation could likely erode the purchasing power of savings, making it harder for retirement portfolios to support future living expenses.

Those factors would be a headwind for retirement savers, many of whom rely on traditional 60/40 portfolios and count on stocks for long-term growth and bonds for stability and income.

In contrast, we believe real assets are well positioned in this market environment, adding inflation sensitivity, diversification from stocks and bonds, and potentially strong performance in a market environment characterized by persistent inflation risk, supply shocks, commodity underinvestment, protectionism and geopolitical uncertainty.

Let’s focus on inflation.

For much of the post financial crisis era, inflation was a secondary concern for retirement investors. Consumer prices were stable, interest rates were low, and stock and bond portfolios delivered strong real returns.

That world has changed. Inflation has not only returned at higher levels, but with greater volatility.

A portfolio that mitigates the impact of inflation can protect the future purchasing power of retirement nest eggs. That’s where we believe real assets come into play.

The economic drivers of real assets are often directly or indirectly tied to inflationary trends, historically resulting in outsized returns when inflation exceeds expectations. For example, the release of pent-up consumer demand, which is one of the drivers of inflation today, stands to benefit assets that struggled the most early in the pandemic such as commodities, natural resource equities, real estate and infrastructure.

An allocation to a blend of real assets may help preserve future purchasing power, potentially offsetting the weak or even negative inflation sensitivity of traditional portfolios concentrated in stocks and bonds.

Starting with the global pandemic and continuing in more recent years, inflation has consistently surprised to the upside, confounding expectations of a quick return to the “old normal” of low and stable prices. Although headline inflation has moderated from higher peaks, underlying inflation pressures remain a thorny hurdle for classic 60/40 portfolios of stocks and bonds.

Higher energy prices from recent geopolitical events or higher grocery prices are poignant reminders of inflationary pressures. Cohen & Steers forecasts consumer inflation to average 3.0% annually in the U.S. over the next 10 years, below post-pandemic peaks but well above the 1.6% experienced in the last cycle and significantly higher than the Federal Reserve’s long-term 2.0% target.

The key factor is that the world has fundamentally shifted from a period we reference as an era of abundance to an era of scarcity (Exhibit 1).

Quantitative easing, globalization, stagnant wage growth, and geopolitical stability were the hallmarks of the era abundance that led to low inflation. Today, labor markets remain tight with sustained wage-price pressures. Meanwhile, ongoing energy and commodity supply shocks continue to amplify inflation, driven by resource protectionism (i.e., export controls), geopolitical tensions and armed conflicts.

Over the last five years, a series of supply shocks came in waves, starting with the pandemic (2021), the war in Ukraine (2023), tariffs (2025) and the war in the Middle East (2026).

Throughout these shocks, sell-side economists kept forecasting inflation would soon bend toward 2%, only to be wrong year after year. All combined, actual inflation exceeded market implied inflation breakevens by 2.05% each year.⁽¹⁾

Inflation surprises are, by definition, unforecastable. And it is the tendency of real assets to respond structurally to inflation shocks that makes them so valuable in the context of broader asset allocations.

For investors saving for retirement, inflation shocks present a direct threat to their future financial security. That’s because inflation erodes the purchasing power of savings, increasing the odds that a retirement nest egg won’t last through retirement. Elevated inflation means higher costs for essential goods, such as food, clothing, shelter and gasoline.

At March 31, 2026. Source: Cohen & Steers.

With traditional 60/40 portfolios, investors rely on stocks for long-term growth and bonds for stability and income. This framework assumes bonds will offset equity risk by preserving capital during periods of market stress.

Inflationary environments, however, can undermine both sides of this stock-and-bond equation. Historically, stocks and bonds underperform during periods of rising inflation, and when inflation spikes unexpectedly (Exhibit 2).

By contrast, it’s against this inflation backdrop that real assets often shine brightest in terms of returns.

The economic drivers of real assets are tied to inflationary trends, both directly and indirectly, often resulting in higher revenues and cash flows when inflation exceeds expectations.

Take real estate. Commercial leases for industrial warehouses and healthcare facilities, for example, link rents to inflation via contractual escalators that automatically rise with inflation, supporting profits. Landlords of properties with shorter leases, such as self-storage and apartments, raise rents in line with higher inflation when leases renew.

This same dynamic applies to infrastructure. Communications and data infrastructure companies, for example, typically have long-term contracts that include inflation escalators that increase revenues if inflation spikes. Within the utilities sector, regulators stipulate the rates that companies can charge, typically allowing them to pass along rising operating costs from inflation onto consumers.

Annual average real return

At March 31, 2026. Source: Barclays, Bloomberg, Dow Jones, FTSE, S&P, Refinitiv Datastream and Cohen & Steers.

The mention of specific commodities is not a recommendation or solicitation to buy, sell or hold any commodity interests. Please refer to the Index associations and definitions page for index definitions. Inflation is measured using the Consumer Price Index (CPI) for all urban consumers, published by the United States Department of Labor’s Bureau of Labor Statistics. Rising inflation is measured as a positive year-over-year increase in the 12-month inflation rate. Unexpected inflation is measured as a positive difference between the year-over-year realized inflation rate and lagged 1-year ahead expected inflation. Expected inflation as measured reflects median inflation expectation from University of Michigan Survey of 1-Year Ahead Inflation Expectations. A real rate of return is the annual percentage return realized on an investment, which is adjusted for changes in prices due to inflation.

Natural resource companies that produce food, energy and metals also benefit from inflationary pressures. Because demand for essential resources typically remains strong (inelastic) despite inflation, producers can pass along higher costs of labor and other inputs onto customers.

Rising prices of key materials (such as wheat, oil and copper) can therefore increase cash flows and widen profit margins among natural resource producers.

As for tradable commodity futures, among the four real asset categories that constitute our Real Assets Blend, commodities tend to generate the highest returns when inflation surprises to the upside.

Showing clients the historical outperformance of real assets during inflationary environments is one way to convey the benefits.

Today’s inflationary pressures don’t mean abandoning traditional asset classes. Equities and bonds remain foundational components of long- term portfolios. That said, inflation risk does mean rethinking allocation proportions, particularly if they were built for a low inflation world of abundance and stable geopolitics.

This is especially so for investors who are approaching retirement in a decade or actively making nest egg withdrawals.

For these investors, inflation is not about predicting the next inflation print. It’s about building portfolios that use real assets as a powerful inflation shock absorber.

After a spate of high inflation, some advisors recommend retirees cut back on spending, especially if it’s early in retirement. That’s certainly an option for retirees who don’t mind dialing back on some activities or living standards. Another option is a strategic allocation to real assets, offering further diversification beyond stocks and bonds, plus inflation resilience.

As for today’s target-date funds, they’ve come a long way from 1999 in terms of retirement assets under management. That said, their inflation resilience is often restricted, with sparse allocations to TIPs and listed REITs, and minimal commodity exposures (Exhibit 3).

This is not to suggest that those assets do not belong in target date or other retirement accounts. They do. However, it is important to recognize the role of each allocation in a retirement plan and to understand how they might behave in different market environments.

As fixed income securities linked to inflation, TIPs provide investors with a “fixed” real return. Over the lifetime of the bond, they are designed to outperform Treasuries when inflation is higher than expected, and vice versa.

However, when real interest rates rise substantially (such as 2022) the mark- to-market return may result in losses. Therefore, during the periods of higher inflation and higher rates, TIPs may not appear to protect in an absolute return context.

By comparison, we believe REITs, commodities, and real asset multi-strategy solutions also belong in DC and other retirement asset allocations alongside TIPs given their inflation sensitivity that not only mitigates the impact of inflation on savings but provides higher potential upside performance in inflationary environments.

For long-term investors, both retired and still working, a strategic allocation to real assets offers the opportunity to add higher return potential, inflation resilience and enhanced portfolio diversification.

Dedicated Real Assets Allocation (%)

As of March 31, 2026. Source: Morningstar, Cohen & Steers.

⁽¹⁾ Over the past five years, Headline CPI of 4.44% through February 2026 exceeded prior market implied breakevens of 2.39% by 2.05% per year.