PT - JOURNAL ARTICLE AU - Antti Ilmanen AU - Matthew Rauseo AU - Liza Truax TI - How Much Should DC Savers Worry about Expected Returns? AID - 10.3905/jor.2016.4.2.044 DP - 2016 Oct 31 TA - The Journal of Retirement PG - 44--53 VI - 4 IP - 2 4099 - https://pm-research.com/content/4/2/44.short 4100 - https://pm-research.com/content/4/2/44.full AB - Many defined contribution (DC) savers and plan sponsors implicitly assume that future long-term capital market returns will be similar to those observed in the favorable markets of the past few decades. In recent history, an unexceptional savings rate of 8% each year over one’s career, together with other common industry assumptions, would have allowed DC savers to reach a target retirement income replacement ratio of 75%. Unfortunately, current market yields indicate that both stocks and bonds may deliver lower returns in coming years. This may impact savers significantly: We quantify that roughly 2% lower expected returns could almost double the savings rate required over one’s working career to achieve this same 75% replacement ratio. We conclude by briefly describing some investment strategies that may help enhance portfolio returns.TOPICS: Retirement, portfolio construction