5 Questions You Should Ask About Target Date Retirement Funds

May 18th, 2010  |  Published in Investing, Retirement  |  5 Comments

A Target Date Retirement Fund seems like an easy way to save for your retirement.  You just invest your money in the fund that matches your planned retirement date and you are all set.  Of course, investing for retirement is not that easy.  There are several questions you should ask when deciding to use a target-date retirement fund to save for your retirement.

  1. How risky is the fund? –  Not all target-date retirement funds have the same level of risk.  Two funds with a target date of 2025 could have wildly different proportions of equity and fixed-income investments.  You need to decide what is an appropriate level of risk for your goals.
  2. What are the fees? –  Funds also differ on the fees they charge.  Paying too much in fees can seriously affect the performance of your target-date retirement fund.  Make sure you are not paying too much in fees.
  3. How much should you invest?  –  These funds will not tell you how much you need to save for retirement.  You need to figure that out on your own.
  4. Do you have other retirement savings? –  These funds are designed to be your sole retirement investment vehicles.  If you have other retirement savings that will change your investment allocation and you need to adjust accordingly.
  5. What happens when you hit the target-date? – Some of the target-date funds are designed to end when you hit the retirement target-date while others are designed to continue and hopefully provide you with an appropriate return on your money while retired.  Whichever is the case with the target-date retirement fund you choose you need to make sure that your investment will provide you with a sufficient income during retirement.

These five questions are a good starting point when choosing a target-date retirement fund.  Be sure to investigate a prospective target-date retirement fund thoroughly before using it to save for your retirement.

  

Responses

  1. Burt says:

    May 18th, 2010 at 5:35 pm (#)

    For some of the lowest fees, the Vanguard Target Funds are a good choice. I have many clients who swear by them. Although they took a pretty big hit during the last correction, they have recovered nicely. Keep in mind that their is no such thing as high returns without risk. If anyone tries to sell you a fund that has no risk and high returns…run away fast!

  2. Telecom Devices says:

    May 19th, 2010 at 11:41 pm (#)

    For some of the lowest fees, the Vanguard Target Funds are a good choice. I have many clients who swear by them. Although they took a pretty big hit during the last correction, they have recovered nicely. Keep in mind that their is no such thing as high returns without risk. If anyone tries to sell you a fund that has no risk and high returns…run away fast!
    +1

  3. Patsy says:

    May 26th, 2010 at 9:09 pm (#)

    For some of the lowest fees, the Vanguard Target Funds are a good choice. I have many clients who swear by them. Although they took a pretty big hit during the last correction, they have recovered nicely. Keep in mind that their is no such thing as high returns without risk. If anyone tries to sell you a fund that has no risk and high returns…run away fast!+1
    +1

  4. Anthony says:

    May 27th, 2010 at 3:25 am (#)

    Being retired for a few years now, I agree with all your points.
    One that was a trap for me was point 3 – how much I would need. We calculated it fairly carefully, but one thing we missed was that with more time on my hands, I find more things to get interested in – and spend money on.
    I think that whatever a person calulates they’ll need, add at least 10%.
    Anyway, great blog.

  5. Suzie H says:

    May 31st, 2010 at 9:32 am (#)

    We wanted to stop being ‘slaves to wages’ long before our social security. We were short on point number 3 too and most of the people we know are in that boat with us. We should have started much earlier. Also we made the big mistake of not opting in to various extra pension plans at work until late in the cycle.

    Despite these drawbacks we have managed to get out of the rat race by paring down, having a modest lifestyle and still working. But we now work at things we enjoy and would do anyway if we had more money.