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RUSSELL INVESTMENTS
Unlike glide paths that are customized to a
population of employees, ARA provides a
solution customized to the profile of each
participant. Further, the system monitors
– via record keeper and plan sponsor
data feeds – the evolving characteristics
of each participant and responds with
customized asset allocation model advice
through time.
Let’s meet four pre-retirees all of
whom are 50 years old and 15 years
from retirement.
With TDFs, they all would receive the
same allocation – now and all the way
to retirement at age 65. Consider the
hypothetical information summarized
in Table 1, which is readily available from
the plan sponsor and plan record keeper
and could inform a better strategy for
each person.
This example does not take into account
all of the characteristics that could be
considered, such as assets held outside
of the retirement plan. The financial
health of each participant is a combination
of account balance and future 401(k)
contributions compared with the
retirement income to which each aspires.
3
It is clear that participants with large
retirement resources relative to their
retirement spending goals (whether due
to an early start on retirement savings or
being fortunate enough to be in the right
investment at the right time) are
in a better position.
Jack /
Has the highest salary and
presumably the highest retirement
income target. Social Security will be a
smaller portion of his retirement solution
suggesting that a higher replacement
rate must be supported by his retirement
account. Further, Jack’s deferral rate is
lower than either of the other three.
3
Using appropriate discount
assumptions, this relationship can
be summarized as a funded ratio.
Jack has the
highest salary and
presumably the
highest retirement
income target.
JACK TAMARA BILL
CRYSTAL
Age
50
50
50
50
Gender
Male
Female
Male
Female
Salary
$150k
$120k
$85k
$100k
Deferral rate
4% 8% 8% 12%
Current account balance
$425k
$475k
$475k
$686k
Target retirement income (annual)
$120k
$96k
$68k
$80k
Expected retirement income (annual)
$75k
$90k
$74k
$102k
ARA growth asset allocation
78% 69% 64% 83%
Target date growth asset allocation
68% 68% 68% 68%
Table 1: Asset allocation based on individual characteristics
Sample allocations are provided for illustrative purposes only and are based on assumptions provided.