Target-date funds hinge on one principle: Age matters in investing. Young investors have time to recover from market downturns and can afford to take on more risk than those who are nearing retirement. With that in mind, target-date fund managers shift the mix of stocks and bonds to a more conservative blend as the funds near their target year.
But age isn’t everything. Women tend to live longer than men, so their money needs to last longer. Some people are better savers than others. And someone who has, say, a pension may be willing to take on more risk than someone who doesn’t. That’s the thinking behind a new, personalized investment product that some 401(k) plans now offer.
In addition to age, these customizable accounts may consider salary, gender and the participant’s current 401(k) annual savings rate or account balance (information your employer or retirement-plan administrator routinely gathers about you) to determine the appropriate mix of stocks and bonds. For example, in these customized accounts, two 50-year-olds with different account balances may hold a higher or lower proportion of stocks in their portfolio, depending on how much catching up they have to do.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Roughly half of the 401(k)-eligible workforce has access to a personalized account through their retirement savings plan. Financial firms Russell Investments and Northern Trust offer personalized accounts for some 401(k) plans. Fidelity offers individually tailored investment products called managed accounts in some plans.
Like target-date funds, these accounts typically hold funds (not individual stocks or bonds), and the blend of stocks and bonds in the portfolio changes automatically over time to a more conservative mix. Russell Investments’ offering, called Personalized Retirement Accounts, has $400 million in assets. It charges 0.23% in annual expenses, making it competitive with typical target-fund expense ratios, but fees vary.
Employees can tweak the stock-bond distribution in their personalized accounts by, for example, pushing back their retirement date. But, says Andrew Scherer, a managing director at Russell Investments, “the goal is to make the process as automatic as possible.”
-
Strategies to Optimize Your Social Security BenefitsTo maximize what you can collect, it’s crucial to know when you can file, how delaying filing affects your checks and the income limit if you’re still working.
-
Don’t Forget to Update Beneficiaries After a Gray DivorceSome states automatically revoke a former spouse as a beneficiary on some accounts. Waivers can be used, too. Best not to leave it up to your state, though.
-
403(b) Contribution Limits for 2024retirement plans Teachers and nonprofit workers can contribute more to a 403(b) retirement plan in 2024 than they could in 2023.
-
SEP IRA Contribution Limits for 2024SEP IRA A good option for small business owners, SEP IRAs allow individual annual contributions of as much as $69,000 a year.
-
Roth IRA Contribution Limits for 2024Roth IRAs Roth IRA contribution limits have gone up for 2024. Here's what you need to know.
-
SIMPLE IRA Contribution Limits for 2024simple IRA The maximum amount workers at small businesses can contribute to a SIMPLE IRA increased by $500 for 2024.
-
457 Contribution Limits for 2024retirement plans State and local government workers can contribute more to their 457 plans in 2024 than in 2023.
-
Roth 401(k) Contribution Limits for 2024retirement plans The Roth 401(k) contribution limit for 2024 is increasing, and workers who are 50 and older can save even more.
-
Is a Medicare Advantage Plan Right for You?Medicare Advantage plans can provide additional benefits beneficiaries can't get through original Medicare for no or a low monthly premium. But there are downsides to this insurance too.
-
What You Must Know About the Different Parts of MedicareMedicare Medicare can be complicated but we've got you covered. Here is a quick guide to the different benefits provided through each part.
