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Baby boomers near retirement in TDFs are in jeopardy because they are invested 90% in risky assets. Equities and long-term bonds are risky. This mix lost more than 30% in 2008.

TDFs do not follow the academic theory that they say they follow. Theory is very safe near retirement but TDFs are not. On the 1970s TV show “All in the Family” Edith Bunker wisely explains, “I want my money to relax”: safe investments “work” best in the Retirement Risk Zone spanning the 5 years before and after retirement.

TDFs ignore Sequence of Return Risk where losses near retirement can ruin rest of life.

Although the TDF oligopoly is procedurally prudent, TDFs are not substantively prudent  because they do not protect those near retirement. Just 3 firms manage 70% of the $4 trillion in TDFs – Vanguard, Fidelity and T Rowe Price – and they are all 90% risky at their target date, as are dozens of other “me too” TDFs.

Some (very few) TDFs actually protect, including (1) the $850 billion Federal Thrift Savings Plan (TSP), (2) Retirement Plan Advisory Group’s (RPAG) low risk flexPATH,  (3)  Dimensional Fund Advisor’s (DFA) Target Date Retirement Income Funds, and (4)  my Soteria software that tracks my Safe Landing Glidepath.

Personalized Target Date Accounts (PTDAs) are the current hot topic, but you cannot manage assets for defaulted people as a Qualified Default Investment Alternative (QDIA) because defaulted participants will not talk to you. Also, wealthy people don’t default, so  designs that take more risk for the wealthy don’t work. A “Master PTDA” for all defaulted participants can serve as a QDIA. Non-defaulted – self-directed – participants do want to engage so PTDAs are great for them, but this is not a QDIA.

A U-shaped glidepath protects against Sequence of Return Risk and extends the life of assets in retirement. It is both  a “To” and a “Through” classification.

The past 16 years have been the longest bull market, so TDFs have not broken, yet. The next crash will reveal the need for repairs.

In the crash of 2008 TDFs lost more than 30% but the harm was small because only $200 billion was invested and baby boomers were not yet in the Retirement Risk Zone. Now 75 million baby boomers are in the Risk Zone and $4 trillion is invested in TDFs. This time, the harm will be 20X what it was in 2008, in terms of  both money and lives.

Retirement is a time to seek advice because most retirees withdraw their lifetime savings. This  opens up a wide range of investment opportunities that go well beyond what is provided on a 401(k) platform. Withdrawn assets are delivered in cash that should be slowly and cautiously redeployed. The curated Wealthramp Advisor Directory facilitates guidance.

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