Target Date Funds: How to Evaluate If Yours Is a Good Fit

Look beyond the retirement year associated with your 401(k) fund. Dig deeper to see if the fund’s assumptions match your own situation, or whether it could use some tailoring.

A woman tries on a pair of jeans that is much too big.
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Fabulously wealthy people can walk into a car dealership or clothing store and buy a custom-made product whether they need it or not. But assuming you’re not Jeff Bezos or Elon Musk, the decision to spend more on a bespoke alternative to what is on the showroom floor needs to be carefully weighed. And in the world of 401(k) plans, what factors should you consider before deciding to purchase a customized asset allocation for your plan balances?

For participants who want a do-it-for-me approach to allocating their plan balances, more than 80% of 401(k) plans now offer a suite of target date funds (TDFs). These are prepackaged, age-appropriate investment strategies that are intended to help support post-employment income needs while reducing investment risk near and through retirement. This is accomplished through use of a “glide path” in which the fund’s asset allocation changes over time based on the participant’s retirement age.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

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Alan Vorchheimer is a Certified Employee Benefits Specialist (CEBS) and principal in the Wealth Practice at Buck, an integrated HR and benefits consulting, technology and administration services firm.  Alan works with leading corporate, public sector and multi-employer clients to support the management of defined contribution and defined benefit plans.