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Plan Insight

OCTOBER 2010 Newsletter

What is the End Game With Target-Date Funds; Retirement or Death?

An article recently published in a retirement plan industry journal addressed criticisms of the construction of Target-Date Retirement portfolios that are based on a "through" retirement approach. The term "through" retirement implies that the glide-path, the formula by which the portfolio's asset allocation rebalances over time, carries through retirement to death. This strategy is contrasted by the "to" retirement approach, in which the glide-path is designed to end, or become static, at retirement, as opposed to death. Which is right, retirement or death?

On the surface, the case for the "through" approach is a rational argument, based on historical rates of return and patterns of inflation, combined with increasing life expectancies. But this view implies that a DC plan participant, upon choosing a TDF, makes a decision that is intended to carry through until his or her death. Why do your participants choose TDF’s? A question to consider when offering TDF’s in your plan.

 

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This page was last reviewed and/or updated on Friday, July 03, 2015 05:21 PM

 

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