RT Journal Article
SR Electronic
T1 How Much Should DC Savers Worry about Expected Returns?
JF The Journal of Retirement
FD Institutional Investor Journals
SP 44
OP 53
DO 10.3905/jor.2016.4.2.044
VO 4
IS 2
A1 Antti Ilmanen
A1 Matthew Rauseo
A1 Liza Truax
YR 2016
UL https://pm-research.com/content/4/2/44.abstract
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