When Target-Date Funds May No Longer Serve Retirees Well
Target-date funds simplify saving but may fall short once retirement begins. Here's what investors should weigh.
Target-date funds have long been a staple of workplace retirement accounts, offering a hands-off, gradually conservative investment strategy keyed to a projected retirement year. But financial planners and retirement researchers increasingly note that these products are designed primarily with the accumulation phase in mind — and may not be well-suited to the complex decisions that begin the moment a worker stops drawing a paycheck.
Once in retirement, individuals must navigate a range of financial challenges that a standardized fund cannot easily address: when to begin drawing Social Security, how to sequence withdrawals across taxable and tax-advantaged accounts, and how to manage healthcare costs before Medicare eligibility. Target-date funds, by their nature, apply a one-size-fits-all glide path that does not account for individual circumstances such as other income sources, legacy goals, or spending variability.
Read more Workers Bear More of Rising Health Care Costs, Surveys Show →
The question of whether to exit a target-date fund is rarely a simple yes or no. Investors with straightforward financial situations and limited assets may find the low-cost, diversified structure still meets their needs well into retirement. But those with more complex estates, pension income, or significant taxable holdings may benefit from a more customized approach — either through a financial advisor or by constructing their own mix of index funds and fixed-income instruments.
Experts generally caution against making abrupt changes driven by short-term market performance. Instead, the transition away from a target-date fund, if warranted, is best treated as a deliberate planning exercise tied to broader retirement income strategy rather than a reaction to fund performance alone.
Continue reading at MarketWatch.com
