The target-date fund (TDF) in your retirement account may not provide an adequate stock exposure that you need, researchers found.
If you’re like most of the 30 million or so people investing in a target-date fund mutual fund inside your retirement account, you’ve likely adopted a set-it-and-forget-it attitude toward your nest egg.In one report, New Evidence on the Demand for Advice within Retirement Plans, the authors examined whether defined-contribution plan participants seek out advice with respect to their asset allocation, savings rate and the like.
“This mismatch is important because these ‘through’ glide paths typically take on more risk than ‘to’ retirement glide paths, leaving participants with more equity exposure than they would have if their glide path accounted for their propensity to take money out of the plan at retirement or separation from employment,” Lia Mitchell, a senior analyst at Morningstar, and Aron Szapiro, head of retirement studies and public policy at Morningstar, wrote in their report, Right on Target? Plan...
Given that plan participants are rolling over their “through” target-date fund over into an IRA when they leave their company plan, the odds of their assets being misallocated, being exposed to more risk than necessary in some cases and not enough in others, becomes even greater, and the need for advice even greater still.“It’s possible that some participants are in TDFs with a ‘through’ glide path and they should be in a ‘to’ glide path and vice versa,” said Reuter.
Given that, Szapiro said it’s important that plan participants not just assume that a target-date fund’s glide path is perfect for them.