Why I Don't Care For Target Date Funds
Approximately 30% of all the money in 401ks in Target Date Portfolios. Basically you figure out what year you turn 62 and you pick the Target Date Portfolio that corresponds to that year. Sounds easy enough, so why don't I like them?
The strategy of a Target Date Portfolio is to steadily reduce your exposure to stocks as your retirement date approaches and redeploy that money into bonds. That sounds reasonable on the surface.
However that is a recipe for failure when it comes to retirement. Why? Because bonds are a fixed income product. They are not designed to outpace inflation. At their best they will keep up with inflation on average.
Retirement can last 30 years! You need growth that comes from stocks to keep up with the rising cost of living during a three decade retirement. Bonds don't do that. Only stocks of great companies have proven to do that.
Not to mention, your R&S Plan is essentially funded with bonds. So if you have all your 401k money in a Target Date Portfolio and you have an R&S Pension when you get close to retirement almost all of your retirement money is in bonds.
That leaves your money defenseless against the relentless grinding away of your purchasing power aka inflation.
You need a plan
Retiring - without a plan - is simply a plan to run out of money. Your NRECA R&S Pension is not a plan. Your NRECA 401k is not a plan. Your Social Security is not a plan. Those are only pieces in the retirement planning puzzle.
At 80/20 Financial Services we specialize in helping cooperative employees plan their retirement. We can show you how to turn your 401k and your R&S lump sum into a stream of income just like when you were working while also helping you achieve your desired financial outcomes in retirement.
The consultation is free and without obligation. Contact us to set up a consultation.
For more articles about retirement planning and investing click here.
80/20 Financial Services is an Independent Registered Investment Advisory Firm.
We help electric cooperative employees retire with a plan, not just a portfolio.
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