Target date retirement funds or lifecycle funds have been mentioned in my columns almost as much as that little black dress of finance: the Roth IRA.

The idea behind target date retirement funds is that they are a basket of various funds that is managed by a manager and shifts over time based on when you plan to retire. The farther our your retirement day (2055 is the latest date I’ve seen), the more money you have in stock funds and the less in bond funds. That’s flip flopped for those planning to retire in 2015. Funds can also set based on risk tolerance.
Local mutual fund provider RiverSource, co-sponsored a study with Plan Sponsor magazine to survey what types of employers are offering such funds in 401(k) plans. Most major investment companies offering individual retirement accounts (T. Rowe Price, Fidelity, Vanguard, Schwab, etc) have these options too.

They found that almost 90 percent of mid-to-large-sized retirement plans have at least one lifecycle fund in its midst.

Nearly 3 out of 4 of those employers said they just picked the fund that the investment company providing recordkeeping for the retirement plan had offered. I’d say that’s probably the biggest problem with these funds, which can be extremely useful for the average investor who wishes to set a plan in motion and come back to eat the chicken 40 years later. But the recordkeeper’s stink, then you might be better off picking your own mix modeled after what the target date plan does.

The other problem is that investors don’t get how to use them. These funds diversify for you, so you don’t need to put just a little bit of your money in them. Sure, set aside a sliver for emerging markets or gold or whatever you fancy, but the rest goes in the life cycle fund.

Do you have a lifecycle fund at your work? Like the idea?

This entry was posted on Friday, October 19th, 2007 at 11:40 am and is filed under retirement. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.