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.
- 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.
- 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.
- 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.
- 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.
- 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.