Russell: Post-Retirement Returns Critical for Retiree Income

May 27, 2008 ( - A good portion of the money participants will need for their retirement will come from the investment returns generated by their 401(k) accounts after they stop work, a new research report suggested.

A Russell Investments news release said researchers dubbed their work the 10/30/60 rule. Authors Matt Smith, managing director, Retirement Services and Bob Collie, director, Investment Strategy assert in their report that a defined contribution (DC) context, the plan benefits a participant receives in retirement will consist of:

  • 10% of each retirement income dollar from contributions made to the DC plan while working;
  • 30% investment returns generated before retirement;
  • 60% of investment returns generated after retirement.

The pattern proved to be stable even with a range of assumptions, the announcement said.

As part of its research, Russell altered several input assumptions -such as the retirement age, the age when saving begins, and age of death and found that only lowering the expected post-retirement return would significantly change the 10/30/60 rule.

“It would be wrong to conclude that contribution level is not important. Indeed, without contributions there can be no investment return,” said Smith, in the announcement. “However, with roughly 90% of distributions being generated by investment earnings, sound investment programs are critical if DC plans are to be effective in meeting goals for financial security in retirement.

“This research underpins the importance of a long-term, diversified investment approach as the best way to maximize the chance of successfully meeting retirement income goals,” Smith continued. “Plan sponsors can do their part by diligently reviewing their plan design to ensure best practices when it comes to investment lineups, including the plan’s default options.”