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Target Date Retirement Funds

Target Date Retirement Funds

| February 04, 2021

I remember when I was ready to begin saving for retirement and opened an IRA for the first time. The application process was straightforward, I knew my risk tolerance/time horizon and how I wanted to invest my money. What turned out to be daunting was the overwhelming list of 1500+ mutual funds to choose from, plus the ability to invest in ETFs, and individual stocks and bonds. Saving for retirement and investing in the market can seem like an overwhelming process, but it doesn’t have to be. Target date retirement funds make investing easy!

What is a Target Date Fund?

A target date retirement fund is a managed mutual fund with an asset allocation strategy that is based off the target date year of the fund. Each of these funds are comprised of several different asset classes and are designed to provide a diversified mix of equities and fixed income that will rebalance over time based on the target retirement year of the fund. The further out the target date is, the more volatile and heavily invested in equities it will be. However, as the target retirement year gets closer, the funds allocation will become more conservative.  

Important Things to Consider with Investing in Target Date Funds:

  • Simple and Easy Investing – Investing in a target date retirement fund only requires you to choose the target date retirement year (based on when you plan to retire and need the money) and the amount that you plan to contribute. The fund managers will handle the rest.
  • Diversification – Target date retirement funds are mutual funds; therefore, they will naturally provide diversification by investing in different asset classes.
  • One Size Fits All? What is the difference between a “To” fund and a “Through” fund?
    • “To” Funds – When the fund hits its target retirement date, it will be at its most conservative allocation.
    • “Through” Funds – When this fund hits its target retirement date, the funds allocation will continue to become more conservative for a specified number of years past the actual target retirement year.
  • Accumulation Phase
    • Target date funds can be good for those who are in the stage of accumulating their savings. It’s important to note that target date funds are comprised of stocks and bonds, which perform differently throughout the year. When withdrawing money from a target date fund, you don’t have the option of pulling from a particular equity or bond fund, but rather you will be pulling from both. As you enter the phase of taking distributions in retirement, it may be worth considering moving your money into asset class specific funds, so that you can strategically withdrawal your money, rather than being forced to sell out of a position when it’s not performing well.

Saving for retirement and investing your money can seem overwhelming, but target date retirement funds make it easy. If you have questions about investing and saving for retirement or you would like to develop a retirement income strategy and financial plan, please contact Tycor at 610-251-0670 to speak with an advisor. Or, you may CONTACT US by email.