Target Date Funds Get Too Conservative Too Soon--Securian
November 9, 2008
A new white paper sponsored by Securian Financial Group warns Americans in their 50s and 60s that the popular target date funds in many retirement plans won’t necessarily generate enough retirement savings.
When the investment strategy is pegged to a hypothetical retirement date rather than to longevity, the report says, the strategy may turn conservative too early and the portfolio won't have enough growth potential to produce lifelong income.
"Target date retirement plan investment programs don't go far enough to help employees invest appropriately over time," said Paul Hirschboeck, second vice president and actuary, Securian Financial Group.
"Plans change, but the aging process is inevitable. We developed TargetAge to help retirement plan participants prepare for a financially secure future, regardless of when they retire."
In the white paper, available at http://tinyurl.com/6g22vk, Hirschboeck and Securian actuary Kent Peterson explain the difference between the "target date" and "target age" approaches. It describes the TargetAge glide path and portfolios and compares the features of TargetAge to target date and other lifestyle funds.
It also shows how the TargetAge program assists plan sponsors with fiduciary responsibilities with four key characteristics: transparency, a repeatable investment process, choice, and reasonable fees.
"TargetAge responds to the needs of employees who lack the time, knowledge or inclination to develop an investment strategy," said Hirschboeck.
"Because the program is straightforward, participants easily understand it. In addition to actually being diversified, they feel diversified, which contributes to a participant's ongoing satisfaction with the program."
Securian Retirement, a unit of Securian Financial Group, Inc., serves more than 3,200 retirement plans with $10 billion in assets as of June 30, 2008. Its annuities and retirement plans are underwritten by Minnesota Life Insurance Co., a Securian affiliate.
For more information on related topics, visit the following:
