Russell Research Shows Ninety Percent of Retirement Income Is From Investment Returns, Not Savings/Contributions : Almost Two Thirds of Investment Returns Are Earned During, Not Prior to, Retirement

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Russell Investments has released research to its clients that shows that investment returns generated by 401(k) savings during an individual’s retirement play the critical role in providing retirement income. This challenges the conventional belief that retirement income is derived predominantly from savings and returns accumulated during a participant’s working years.

for any one plan member, the largest part of the investment return…accrues during the payout stage.

These findings build off significant research in the defined benefit space conducted by Don Ezra, director, Investment Strategy, almost two decades ago. In this earlier research, "A Model of Pension Fund Growth" (1989), Ezra modeled DB plan growth and found that "for any one plan member, the largest part of the investment return…accrues during the payout stage."

Dubbed the 10/30/60 Rule by authors Matt Smith, managing director, Retirement Services and Bob Collie, director, Investment Strategy, this new research continues Russell's efforts to leverage its decades of pension expertise for the benefit of the individual investor. In this case, the findings show that in a defined contribution (DC) context, the plan benefits that a participant receives in retirement can be broken out as:

10% of each retirement income dollar consists of contributions made to the DC plan while working 30% is made up of investment returns generated prior to retirement 60% is made up of investment returns generated after retirement The basic 10/30/60 pattern proved to be stable even with a range of assumptions. 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. "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.

"The current turmoil in the markets can cause individual investors to panic and focus only on the short-term. 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," said Smith. "Plan sponsors can do their part by diligently reviewing their plan design to ensure best practices when it comes to investment line-ups, including the plan's default options."

For more information on Russell's Retirement Research, please visit

About Russell

Russell Investments provides strategic advice, world-class implementation, state-of-the-art performance benchmarks and a range of institutional-quality investment products. With nearly $213 billion in assets under management (as of 3/31/08), Russell serves individual, institutional and advisor clients in more than 40 countries. Russell provides access to some of the world's best money managers. It helps investors put this access to work in corporate defined benefit and defined contribution plans, and in the life savings of individual investors.

Founded in 1936, Russell is a subsidiary of Northwestern Mutual Life Insurance Company and headquartered in Tacoma, Wash. Russell has principal offices in Amsterdam, Auckland, Johannesburg, London, Melbourne, New York, Paris, San Francisco, Singapore, Sydney, Tokyo and Toronto.

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Russell Investment Group is a Washington, USA corporation, which operates through subsidiaries worldwide, including Russell Investments, and is a subsidiary of The Northwestern Mutual Life Insurance Company.

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