The power of growth after retirement: 15/35/50 Russell's retirement lifestyle rule
The potential solution?During an investor’s working years, the focus is on regular savings and market growth to build a retirement nest egg. But Russell Investments' research shows that when investors reach retirement, following a strategy that keeps their portfolio growing is crucial to fund their desired lifestyle. Based on Russell’s 15/35/50 Retirement Lifestyle Rule, the total value of an individual investor’s cumulative retirement income can come from the following sources:
- 15% from money saved during an investor’s working years
- 35% from the investment growth realized before retirement
- 50% from investment growth that occurs during retirement
Manage risk while planning for growthWhen it comes to designing an effective retirement portfolio, there are three primary risks to consider:
- Market Volatility: If the market declines, the value of a portfolio will be affected. To address this risk, it often makes sense to move into more conservative investments as retirement approaches—but be careful of being overly conservative.
- Longevity Risk: Many people underestimate their life expectancy. If a portfolio does not continue to grow during retirement, there’s a risk of running out of money.
- Sequential Risk: The timing of when an investor moves from accumulation to decumulation can be crucial to the long-term health of their investment portfolio due to the sequence of investment returns. Poor returns early in retirement are much more harmful to an investor’s retirement portfolio than poor returns later in retirement. The more equity-oriented a portfolio is, the larger the potential impact of sequential risk.
1 Russell’s glide path methodology is designed to help investors achieve a sustainable income stream in retirement. It incorporates reasonable assumptions regarding savings, inflation, and capital market returns along with a clearly specified investment target to determine a suitable asset allocation based on the investor’s age or time to retirement. Younger investors who are further from retirement will have a higher allocation to equity than older investors who are near or at retirement. It does not take into consideration taxes, periods of negative returns or the costs associated with ongoing investments.