Target-date funds are popular default options in workplace retirement plans. They automatically shift toward safer investments as retirement approaches. Yet these funds are not built to handle many decisions retirees face.
The funds focus mainly on accumulation, not on how to draw income in retirement. They offer little guidance on when to claim Social Security. They also do not address tax planning or health care costs.
Investors often hold target-date funds inside tax-deferred accounts. That structure limits flexibility once withdrawals begin. Retirees may need a different strategy for generating steady income.
A key question is timing. Some experts suggest reviewing the fund several years before the target date. Others recommend keeping it through retirement if the allocation still fits.
Costs also matter. Expense ratios vary widely between providers. Low-cost options can preserve more savings over a long retirement.
Risk tolerance changes as people age. A fund designed for the average investor may not match an individual’s health or spending needs. Personal circumstances should guide any decision to sell.
Investors should compare the fund’s glide path with their own plans. Consulting a financial adviser can clarify whether to hold, adjust, or replace the fund. The right answer depends on each person’s full financial picture.
