What is a Target Date Fund?


36 Source: Prudential Financial Literacy and Retirement Readiness study (December 2013)

Target Date Funds are multi-asset class investment products which may be designed specifically for use by retirement plans and are unique because the asset allocation mix of each fund automatically changes over time according to a predetermined timeline that targets a future target date. This timeline is commonly referred to as a "glidepath" because the portfolio readjusts over the targeted timeline.

For example, target date funds generally take on more risk, and potentially more reward, in the earlier stages of the glidepath and gradually attempt to mitigate risk as a specific target date approaches.

 


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Generally, a target date fund is designed to be used by those who plan to retire and begin taking withdrawals in or near that specific target date. As with any investment, there are various factors and risks to consider when selecting a target date fund. In addition to anticipated retirement date, relevant factors for fund selection may include, age, risk tolerance, other investments you own, and planned withdrawals. An investor should carefully consider the investment objectives, risks, charges, and expenses of a target date fund before investing. Like all variable investments, these funds may lose value. A participant or beneficiary may lose money by investing in the funds, including losses near and following retirement, and there is no guarantee that the funds will provide adequate retirement income. A target date fund should not be selected based solely on age or retirement date, is not a guaranteed investment and the stated asset allocation may be subject to change.

 


 

Target Date Fund Solutions for Today’s Retirement Challenges

Prudential’s thought leaders discuss key considerations for plan sponsors and consultants in selecting the right target date fund for their workplace retirement plan. The panel explains why plan sponsors need to focus on participant behavior that can exacerbate risks to their retirement readiness over a lifetime. The panel also examines how glide path design can influence better retirement outcomes.

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Addressing Sequence of Returns Risk

Prudential’s thought leaders discuss the unique risks investors face during the ten years before and after retirement and how a smarter glide path that maintains an appropriate mix of investments before and after retirement can help investors stay on track.

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This panel explores the unique inflation risks faced by retirees. Prudential’s thought leaders discuss the different asset classes that are intended to provide a hedge against inflation to help retirees maintain the purchasing power of the assets in their portfolios.
0285135-00002-00

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Many Americans are facing a potential retirement income gap—a 2014 Prudential Financial Literacy and Retirement Readiness Study found that most employees are falling short in saving what they need for retirement—and a variety of solutions are being contemplated both in Washington, DC and in the private sector to help solve this "retirement crisis." For example, features such as auto-enrollment and auto-escalation have been implemented in many defined contribution plans to help combat participant inertia.

These features make it increasingly important for plan sponsors to choose a qualified default investment alternative (QDIA) for participants who do not otherwise make an investment selection.

Target-date funds, which attempt to provide an appropriate asset allocation mix and glidepath based on an investor's estimated retirement date, have become an increasingly popular investment option, especially as a QDIA.

If you are a plan sponsor or consultant, log on our Financial Professional Site to learn more.

 

0277689-00005-00 Ed. 08/2016