Many debates in defined contribution (DC) circles focus on fees, new asset classes, and ever more complex solutions. But the biggest improvement available to plan participants may come from something far simpler: how their fixed income is managed. Active portfolio managers have touted the improved investor outcomes associated with their management style, while their passive counterparts stressed the simplicity of their approach and lower fees. But what does this all mean for plan participants? To answer this question, it is helpful to go beyond abstract concepts like “improved outcomes” or even the precise, but difficult to interpret, measures of performance such as “higher annual returns.”
We quantify the impact of actively managed fixed income on four easy to interpret objectives that are broadly relevant for participants saving for retirement:
- How much longer could retirees stretch their dollars in retirement and reduce the risk of running out of money?
- Could active management help them retire earlier, should they wish to do so?
- How much could active fixed income help for working age participants who may want to save more?
- How much more could investors afford to spend in retirement by choosing actively managed options?
As we will see, actively managed fixed income can significantly improve retirement outcomes without requiring higher contributions or added complexity.
Our approach
To evaluate how active management measures up against passive strategies, we examine a hypothetical plan participant who:
- Invests across their full lifecycle. This includes a 40‑year accumulation period during which they contribute to the plan and earn investment returns—followed by a 20‑to-30‑year retirement, during which they draw down their retirement plan nest egg while continuing to earn investment returns on the remaining assets.
- Follows a typical target date fund glide path (based on PIMCO’s flagship designI), with earnings, contributions and employer match patterns calibrated to national averages across ages.
The passively-managed reference portfolio assumes index‑based implementation across the portfolio, while the active approach assumes that only the fixed income assets—where a more consistent history of generating excess returns, or alpha, exists (see Figure 1)II —are managed actively and receive excess returns consistent with those in PIMCO’s flagship retirement product.III
Figure 1: Active fixed income typically outperforms their passive counterparts—at nearly twice the rate of active equityIV on average
Source: PIMCO (2025).
For illustrative purposes only. Not indicative of the past or future results of any PIMCO product or strategy. There is no assurance the desired results will be achieved. Past performance is not a guarantee or reliable indicator of future results.
Active Fixed Income represents actively managed mutual funds and ETFs in the Morningstar U.S. Taxable Bond and Municipal Bond Categories. Active Equity represents actively managed mutual funds and ETFs in the Morningstar U.S. category groups of U.S. Equity, International Equity, Sector Equity, and Nontraditional Equity. The net returns of Active Bond Funds and Active Equity Funds were compared against the median net returns of passive peers in each 10-year rolling period between 12/31/2005 and 12/31/2025 when both the funds being analyzed and the passive peers were present. Passive peers are mutual funds and ETFs classified as an “index fund” or an “enhanced index fund” in the same Morningstar category as the funds being analyzed. Oldest share class net returns are used for analysis. Results would vary if a different share class was selected. Different fund types (e.g. ETFs, open-end investment companies) and fund share classes are subject to different fees and expenses, which may affect performance, have different investment objectives, may have different minimum investment requirements, and may be entitled to different services.
The outperformance provided by active fixed income provides substantial benefits to plan participants.
Concerned about “running out of money” in retirement?
One of the most common concerns for near- and already retired participants is the fear that they will outlive their retirement savings, especially as lifespans continue to increase and inflation forces them to consume a larger share of their accumulated assets each year. How could active fixed income extend their savings?
Our findings show that the incremental wealth associated with active fixed income excess returns and gained over the 40-year accumulation period may enable plan participants to extend the life of their retirement savings by an additional four years on average for those with a 20-year retirement planning horizon. For those concerned with longer retirements, the benefits are even more significant. A 30-year retirement could extend asset longevity by at least a full decade on average, as shown in Figure 2 below.
Figure 2: Active fixed income may help tetirement savings last longer than passive
Source: McQuarrie (2021), PIMCO(2025). Median values shown
For illustrative purposes only. There is no assurance the desired results will be achieved. Past performance is not a guarantee or reliable indicator of future results.
Historical returns data used in evaluation. Estimated improvements reflect 75 bps of public fixed income alpha each year. Allocations are based on PIMCO’s glide path. Annual asset class return assumptions are based on McQuarrie data from “Where Siegel Went Awry: Outdated Sources & Incomplete Data” (2021) research paper which highlights a 227-period of stock and bond returns and inflation data. See end disclosures for more details on calculation and modeling methodology
In other words, for the same participant earnings and identical lifetime savings, market returns, inflation and (real) retirement spendingV, active fixed income alone can increase the longevity of a participant’s assets by 20% - 33%.
Wish you could retire earlier?
While the asset longevity gains could be substantial, the fruits of actively-managed fixed income can be used towards many other objectives. For example, many participants might find the idea of retiring earlier while still maintaining the same standard of living in retirement to be enticing. Our analysis shows that our hypothetical plan participant with the same savings rate behavior as a passive investor, but using actively managed fixed income, could potentially retire several years earlier on average (as shown in Figure 3 below) and still maintain the same average real spending rate throughout retirement.
In other words, active management of fixed income assets could potentially enable plan participants to shorten a contemplated 40-year career by up to 9% to 20% and enjoy a substanitially similar standard of living in retirement compared to a passive implementation.
Figure 3: Early retirement potential without compromising estimated standard of living
Source: McQuarrie (2021), PIMCO (2025).
For illustrative purposes only. There is no assurance the desired results will be achieved, Past performance is not a guarantee or reliable indicator of future results.
Historical returns data used in evaluation. Estimated improvements reflect 75 bps of public fixed income alpha each year. Allocations are based on PIMCO’s glide path. Annual asset class return assumptions are based on McQuarrie data from “Where Siegel Went Awry: Outdated Sources & Incomplete Data” (2021) research paper which highlights a 227-period of stock and bond returns and inflation data. See end disclosures for more details on calculation and modeling methodology.
Wish you could save more?
Many pundits often suggest that increasing participant savings rates is the most effective way to increase retirement wealth. In practice, however, it can be difficult for many to pay down student debt, purchase a home, raise children, or pay for college and still direct a larger amount of their pay towards retirement savings. But switching from passive investing to actively managed fixed income may offer benefits comparable to raising participant savings rates even when the latter is simply not feasible.
Similarly, plan sponsors may wish that they could provide an even higher match rate for their employees, but business realities might prevent them from doing so. Those employers could turn to active management of their DC plans to help employees achieve outcomes resembling those that could be achieved with a meaningfully higher match.
Using our hypothetical plan participant and historical performance data, we estimate that over a 20-30 year retirement period, actively managed fixed income can potentially improve retirement outcomes by the same amount as an 8.5% to 10% relative increase in an employee’s annual savings.VI
Figure 4: What if participants wish they could save more for retirement?
Source: McQuarrie (2021), PIMCO (2025).
For illustrative purposes only. There is no assurance the desired results will be achieved, Past performance is not a guarantee or reliable indicator of future results.
Historical returns data used in evaluation. Estimated improvements reflect 75 bps of public fixed income alpha each year. Allocations are based on PIMCO’s glide path. Annual asset class return assumptions are based on McQuarrie data from “Where Siegel Went Awry: Outdated Sources & Incomplete Data” (2021) research paper which highlights a 227-period of stock and bond returns and inflation data. See end disclosures for more details on calculation and modeling methodology.
The estimated equivalent employer contribution is larger still: the calculation above implies that active fixed income could achieve increases in retirement spending that may require a 30% to 35% increase in the employer match if instead paired with a passive investment approach.
Source: McQuarrie (2021), PIMCO (2025).
For illustrative purposes only. There is no assurance the desired results will be achieved, Past performance is not a guarantee or reliable indicator of future results.
Historical returns data used in evaluation. Estimated improvements reflect 75 bps of public fixed income alpha each year. Allocations are based on PIMCO’s glide path. Annual asset class return assumptions are based on McQuarrie data from “Where Siegel Went Awry: Outdated Sources & Incomplete Data” (2021) research paper which highlights a 227-period of stock and bond returns and inflation data. See end disclosures for more details on calculation and modeling methodology
Wanting or needing to spend more in retirement?
Finally, the estimated rewards of active management could be used in a straightforward way: to increase a participant’s standard of living in retirement. We find that retirees could enjoy a sustainable real spending rate that is 9% to 11% higher on average with an active investment strategy.
What does it really mean to be able to spend this much more in retirement? To make this metric intelligible, let’s translate it into something that feels familiar. Retirees are used to receiving monthly payments, be it from Social Security, pensions or other similar programs. The estimated improvement in sustainable spending from active fixed income is approximately equivalent to receiving one additional monthly pension payment (with one month corresponding to just over 8% of a year (1/12th) versus the up to 9% to 11% cited above). In other words, active management, if utilized over the full 40-year accumulation period, has the potential to provide our hypothetical participant with the equivalent of (slightly more than) a “13th monthly check” each year.
Figure 5: Potential increase in sustainable spending in retirement
Source: McQuarrie (2021), PIMCO (2025).
For illustrative purposes only. There is no assurance the desired results will be achieved, Past performance is not a guarantee or reliable indicator of future results.
Historical returns data used in evaluation. Estimated improvements reflect 75 bps of public fixed income alpha each year. Allocations are based on PIMCO’s glide path. Annual asset class return assumptions are based on McQuarrie data from “Where Siegel Went Awry: Outdated Sources & Incomplete Data” (2021) research paper which highlights a 227-period of stock and bond returns and inflation data. See end disclosures for more details on calculation and modeling methodology
Conclusion
With so much attention being devoted to the search for new asset classes — private markets, alternatives, and increasingly complex solutions — it’s easy to overlook a simple, immediately accessible source of value already available to many U.S. retirement plans.
Active management - specifically within fixed income – may offer a clear, practical way for plan participants to seek improvement of their retirement outcomes without requiring any behavioral changes, any additional complexity, or a reinvention of their investment lineup. The benefits are measurable, intuitive, and directly tied to the goals savers care about most:
- Making their savings last: participants can make their assets last 25-33% longer in retirement without reducing their standard of living.
- Retiring early: they can allow for participants to retire four to eight years earlier.
- Saving more while working: active fixed income provides benefits equivalent to an 8-10% increase in overall savings while working, or a 30-35% increase in employer matching contributions
- Increasing their standard of living in retirement: they can afford to increase their spending in retirement by up to 9-11%; roughly one additional month of income each year.
Improving retirement outcomes may not require something exotic or newly added, simply a smarter use of an existing tool – actively managed fixed income that millions of savers already rely on.
I See https://www.pimco.com/us/en/investment-strategies/target-date-solutions for information on PIMCO’s target date offerings. ↩
II Baz, Jamil; Guo, Helen. “Bonds are Different: Active Versus Passive Management in 12 Points” (https://www.pimco.com/us/en/insights/bonds-are-different-activeversus-passive-management-in-12-points ↩
III Historical return data is sourced from the post- World War II experience in McQuarrie, Edward F., “Where Siegel Went Awry: Outdated Sources & Incomplete Data” (July 2021). Additional details on economic assumption, demographic profiles, robustness tests, as well as assumed asset allocation and contribution/employer match rates can be found in our long form white paper here (link to Sean’s longer piece) ↩
IV Percentage of active managers that generated excess returns versus the median passive manager, (classified as “Index Fund” by Morningstar), based on 5-year after fee returns for each Fund families’ lowest priced share class). Categories (Institutional shares only). Equity represented by Morningstar US Large Cap Blend category, Fixed Income represented by Morningstar Intermediate Core Bond and Intermediate Core-Plus Bond categories ↩
V We calculate sustainable constant real spending rates as a fraction of the initial at retirement balance purposefully comparable to the methodology found in Bengen, William “Determining Withdrawal Rates Using Historical Data” Journal of Financial Planning (1994) ↩
VI This corresponds to a 0.9-1 percentage point higher savings rate each year. ↩