When it comes to investing for retirement, do plan members benefit more from having target-date funds that come with a standard formula or funds that may change investment strategies over time depending on the portfolio’s performance?
A recent paper published by the Social Science Research Network suggested that target-date funds may not be the most effective solution. While they make retirement planning easy for employees with little investment knowledge, target-date funds aren’t serving them well in the long term because they don’t consider desired retirement outcomes or how well a portfolio does over time, the paper’s researchers argued.
Read: Target-date funds don’t serve employees well: study
Instead, they suggest a target-wealth strategy, in which the portfolio’s asset mix depends on both time before retirement and how the portfolio has fared compared to the goal. But in order for the new strategy to work, employees needs to make a long-term commitment to their desired level of wealth upon retirement, the paper noted.
In light of the increased burden on plan members to make investment decisions for their retirement, do you agree with the criticisms of target-date funds? Should plan sponsors consider offering a target-wealth approach that puts greater weight on how a portfolio has performed? Have your say in this week’s poll.
Read: More pension plans using target-date funds as default option
Last week’s poll asked how much summer vacation people plan to take this year. Among respondents, two per cent said they’re not taking any time off this summer because they have too much to do, while 21 per cent plan to take a few days off to coincide with weekends. More than half (65 per cent) plan to take a week or more off, while 12 per cent said they prefer to use their vacation time during the rest of the year.
