Retirement & Financial Planning Report

A report on the use of target-date investment funds nationwide cites the growing popularity of such funds for retirement savings, mirroring a recently report from the Thrift Savings Plan about the use of such funds—in the TSP, the lifecycle L funds—in that program for federal employees and retirees.

The report from the Employee Benefit Research Institute goes beyond the scope of the TSP data by showing that some investors do not choose the funds deemed appropriate for their age.

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The report said that through 2018, some 56 percent of 401(k)-type retirement savings programs offered target-date funds and that such funds held 27 percent of the assets in those programs. That’s somewhat higher than the roughly 23 percent of assets in the TSP’s L funds collectively.

Also similarly, the report said that younger investors are more likely to use such funds—which essentially are portfolios of investments in stocks and bonds that vary by projected withdrawal date. Nationally, 62 percent of account holders in their twenties, but only 23 percent in their sixties, have assets in such funds. That’s almost identical to the TSP’s 63 percent and 17 percent.

A main reason is that many 401(k)s have the same policy the TSP has used since 2015, of automatically enrolling those newly hired in a fund appropriate for their age; many never change that even though they may at any time.

The broader report also showed, as did the latest TSP report, that younger people who used a target-date fund were more likely than older people to have all of their account balances in just one target-date fund. “The evidence shows that target date fund investors tend to use these funds as they are designed: as a single, complete portfolio option. The majority of target date fund investors have most of their assets in a single target date fund that is appropriate for their age,” it said.

However, it added that about a third of investors in funds geared to those making current withdrawals—comparable to the TSP’s Income fund—are younger than that category. On the other end, a fifth of investors in the most aggressive of funds are above the age target of those funds. In the latter case, three-fourths of the assets in such funds are held by people above the age target.

“Individual investors may have a different target retirement age in mind, or may be seeking more focus on growth (choosing a later target date than their age suggests, making them old for the fund) or more focus on income (choosing an earlier target date than their age suggests, making them young for the fund),” it said.

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