The Russell Investments 10/30/60 Retirement Rule
For much of your working life, you focus on saving for retirement. But research shows that 60% of your investment earnings can come from post-retirement returns – which means that developing a retirement plan that keeps your portfolio growing after you retire is just as crucial to your financial health as saving for retirement during your working years.
It’s common knowledge that regular savings and equity market growth are great for building a retirement nest egg. But you might be surprised to learn that continued investment growth after you retire can keep you in good financial health. Based on the Russell Investments 10/30/60 Retirement Rule, the sources of your investment earnings during retirement can look approximately like this:
• 10% from money you saved during your working years
• 30% from the growth of your savings before you retired
• 60% from growth that occurs during your retirement
In other words, as much as 90% of your investment earnings during retirement can come from growth, and a significant majority of that growth can take place after you retire. How does it work? The key is having the right portfolio mix in place up to and through retirement. Figure 1: Savings, growth and income to and through retirement¹
Figure 1: Savings, growth and income to and through retirement
¹Distributions in retirement increase at 5% annually; 5% average annual increase in savings rate from 25 to 65; average annual investment return of 7.3% in accumulation phase, 6.5% return in decumulation phase; account is distributed in full by the 90th year.
Manage risk while planning for growth
When it comes to designing an effective retirement portfolio, there are two primary risks to consider:
- Market volatility: If the market underperforms, the value of your savings goes down. In fact, at the point of retirement, when your savings are at their peak, adverse market conditions could be particularly harmful. To address this risk, ensuring you are using a highly diversified multi asset portfolio is an important aspect for your retirement plan.
- Longevity risk: At the same time, many people underestimate their true life expectancy. If your portfolio does not continue to grow during retirement, you could run out of money. Combat both of these risks with the Russell Investments 10/30/60 Retirement Rule. With the right portfolio mix of varied and diversifying investments, and the skill of professional money managers behind you, you can reduce the risk of market volatility and still earn the growth and long-lasting income you’ll need.
The power of growth after retirement
Paul starts saving for retirement at the age of 25 by contributing £600, with an additional £400 from his employer. Over the next 40 years, he makes various annual contributions, which total £113,678 by the time he is 65. At 65, Paul begins to withdraw from his retirement savings – starting with £21,241 the first year and increasing each year until age 90. Paul was able to withdraw over £1.1 million during retirement.
Paul’s case illustrates the Russell Investments 10/30/60 Retirement Rule in action:
- Just 12% of Paul’s investment earnings between ages 65 and 91 came from his initial contributions of £120,800.
- 31% of Paul’s investment earnings came from portfolio growth of £316,169 that occurred before he turned 65.
- £576,781 – a whopping 57% of Paul’s investment earnings came from growth that occurred between the ages of 65 and 90.
- Paul’s total distributions between 65 and 91 were £1,013,750.
Make your money last a lifetime
No matter at what stage of life, the fundamentals of investing remain the same: take advantage of investment returns to grow savings, diversify by asset classes, investment styles and investment managers to reduce risk, and most importantly work with a professional investment adviser to plan for financial needs and keep you on track using the knowledge from concepts such as the Russell Investments 10/30/60 Retirement Rule.