US - The majority of retirement income for defined contribution (DC) 401(k) plans is generated by investment return, not contributions, according to research from Russell Investments.
The report's authors referred to what they termed the '10-30-60 rule', which showed 10% of retirement benefits to be made up by contributions, 30% to be pre-retirement investment returns and the remaining 60% to be generated by investment returns during retirement.
Matt Smith, managing director, Retirement Services, Russell Investments, who co-authored the report, said: "It would be wrong to conclude that contribution level is not important. Indeed, without contributions there can be no investment return.
"However, with roughly 90% of distributions being generated by investment earnings, sound investment programmes are critical if DC plans are to be effective in meeting goals for financial security in retirement."
Smith added plan sponsors had a need to ensure best practice when offering investment options, including the default option.
The research echoes a conclusion by Watson Wyatt, which Global Pensions reported on earlier this month (www.globalpensions.com; 15 May 2008). Watson Wyatt said greater advice and education was needed for DC scheme members at the decumulation stage.
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