We Believe ...
- Target date funds (TDFs) are a reasonably good idea but with pathetic execution, at least so far.
- TDFs should end at the target date – a “To” fund – entirely in safe inflation-protected assets.
- “Through” funds that target death rather than retirement date are sold, not bought. They’re good for fund companies but awful for beneficiaries.
- Recordkeepers keep records. Financial engineers design Safe Landing Glide PathsTM.
- The Hippocratic oath of TDFs is “First, lose no money, especially as the target date approaches.”
- Common practices in TDFs are currently far from best practices.
- Fiduciaries choose TDFs, not plan participants.
- Qualified Default Investment Alternatives (QDIAs) should emphasize safety as retirement approaches.
- The transition period, from five years before retirement to five years after, is the most critical for maintaining lifestyle in the long run.
- Longevity risk cannot be managed with a glide path. Annuities and managed payout funds might work. Saving enough is the best approach. “You have to use the right tools for the job.” – Bob the Builder
- The date in the target date fund name should mean something.
- “Through” funds have been concocted as (1) an excuse for the 2008 failure and (2) a grab at keeping assets longer. Participant behavior defies the retention objective because most withdraw accounts at retirement.
- “One size fits all” is a legitimate criticism. TDFs are not “right” for everyone, but properly constructed they can be better than participant choices. “Set it and forget it” can serve beneficiaries well.
- Enlightened fiduciaries choose the Safe Landing Glide PathTM provided by Target Date Solutions.
– Ron Surz, Founder, Target Date Solutions
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