Saving for Retirement
Stay on your Retirement Track with Target-Date Funds
If you are among the 80% of people who have neither the time nor inclination to research and actively manage your retirement investments towards achieving your retirement goals, you may want to consider target mutual funds. All that is needed is to figure out the year you want to retire and then select a target date fund for that year. For example, if you were born in 1963, and you are targeting the year 2028 to retire, you would select a 2025 target-date fund (target dates are available in five-year intervals). Set it, and forget it.
The funds are comprised of a mix of different assets, such as stocks, bonds, cash, and real estate diversified and balanced in an allocation that reflects the growth and income needs appropriate to your age. The fund strategy is to gradually adjust the investment mix to correlate with your changing investment needs. The fund’s investment strategy is geared towards providing the asset growth that will be necessary to provide an income stream 30 years beyond the target date at a rate that outpaces inflation.
Generally, the fund’s investment mix becomes more conservative the closer it gets to the target date. So, a 60/40 ratio of growth to income investments might change to a 40/60 ratio over time. By the time you are into your seventies, the ratio could change to 20/80. More conservative investors can choose a fund with more conservative ratios, or they could invest in funds with closer target dates. The best strategy is to “ladder” a few different funds over different target dates.
It’s always advisable to carefully study the fund’s prospectus to determine if the planned investment mix best suits your own tolerance for risk.