Why Target-Date Funds Might Not Be Your Best Retirement Plan Option

Also: Prices Are Finally Falling for Meat, Flights, Computers and More
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August 30, 2022
Retire with Money
If you think saving for retirement is hard, you’re right. In the olden days, people who worked for a big company didn’t have to lift a finger, because they likely had a pension plan. Almost all large corporations gave their employees some life and health insurance and a pension, according to our 1977 cover story on fringe benefits. Nice!

But pensions were already inching towards the endangered species phase. Just a year later, Congress passed the Revenue Act of 1978, which included Section 401(k) — ring any bells? — that gives employees a tax break upfront on setting aside some of their income for retirement savings.

So pensions began their slow decline and employer-sponsored retirement plans started their ascent. As employees began to take more control of their money, confusion set in. After all, the road to retirement, which takes decades, isn’t simple. What to invest in? How aggressive should you be? What if you hate risk? Should you put it all into bonds, cash, money market funds?

Many companies chose cash alternatives or bonds, considered least likely to lose value, for their employees’ investments. But these were also least likely to get someone to a comfortable retirement.

1994: Enter target-date funds, designed with the do-it-for-me investor in mind. No more choosing funds, or stocks, or determining a percentage to place in fixed income. With a target-date fund, you contribute money to the fund that’s named with your desired retirement year and then sit back. As you close in on retirement, the fund automatically rebalances so you’re less invested in stocks and more invested in bonds.

In a bear market (remember a week ago Monday?) target-date funds are seriously underperforming, and sequence-of-return risks for those nearing retirement can be devastating. Over the past 28 years, the funds returned 750%, compared with 1,494% for the S&P 500 and 866% for a traditional 60/40 stock/bond allocation. Check out our story on target-date funds to learn more about this investment option and see if it’s really right for you.

— Jill Cornfield, deputy editor

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Timely Retirement News, Insights and Advice

Finally, some relief from the high inflation that’s been crushing consumer budgets for much of the year. As summer winds to a close, costs are finally cooling for a wide range of everyday expenses. These seven common purchases could be a little easier on your wallet.

The top concern among investors now is that the rate of return on their portfolio won't keep up with inflation, according to a recent survey from financial company Principal. The other big fears from investors were extended periods of investment losses and not knowing who to trust.

The average price of a used vehicle has fallen for four months in a row, dipping below $29,300 in July, says the automotive research firm Edmunds. But that doesn’t mean it’s the right time to buy one.

You know what a watched pot does, right? Turns out, your 401(k) isn’t that different. Never checking your 401(k) is probably a bad idea, our reporter Julia Glum finds, but there's also danger in checking it too often.

Retirement News From Around the Web

This Week’s High-Profile Celeb Retiree: Anthony Fauci
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Computer Hacker Drains Retired Couple's Life Savings (podcast)
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Critics Say a Mandate to Recover Health Care Spending on the Poor Perpetuates Poverty and Inequality With Little to Show for It
NEXT AVENUE
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