Opportunity cost exorbitant, but dirt cheap, Institutional Target Date Retirement Funds (TDFs) have multiple "Emperor's New Clothes" characteristics coupled with beyond Madoff fraud and manipulation. Yet they are supported by Federal regulators, and forced down the throats of advisory/fiduciary professionals. 

Retirement income portfolios comprised of individual common stocks and various types of income purpose securities have existed for decades in privately managed portfolios. Market Cycle Investment Management (MCIM) programs are a classic, high quality example...similar to the employer pension plans that thrived in years past. 

Wall Street's newest "head candy" is a brilliantly named "fund of funds" that satisfies regulatory cost emphasis; but they don't provide meaningful retirement income? 

This from a major provider's 2015 TDF product description page:

• "(Our) Target Date Retirement Funds offer a diversified portfolio within a single fund that adjusts its underlying asset mix over time. The funds provide broad diversification while incrementally decreasing exposure to equities and increasing exposure to bonds as each fund's target retirement date approaches."
• "The funds continue to adjust for approximately seven years after that date until their allocations match that of (our) Target Retirement Income Fund.... (Our) 2015 Fund invests in five index funds, holding approximately 55%... in equities and 45% in bonds... Consider this fund if you're planning to retire between 2013 and 2017."

 MCIM portfolios adjust the asset allocation over time, but they place about five times as much spending money in retiree checking accounts. True retirement programs are income focused.

Here’s the 11/05 content of the company's 2015 TDF, with an Expense Ratio (ER) = 0.16%:

Total Stock Market Index Fund ………..........29.3% (3909 stocks*)  (yield = 1.8%) (ER= .17%)
Total International Stock Index Fund ……….19.4% (6118 stocks*)  (yield = 0%) (ER = .22%)
Total Bond Market II Index Fund ……………..30.0%  (yield = 2.1%) (ER = 0.10%)
Total International Bond Index Fund…………12.8%  (yield = 0.9%) (ER = 0.23%)
Short Term Inflation-Protected Index Fund…8.5%  (yield = 0.7%) (ER = 0.20%)

 *There are fewer than 500 individual equities rated "investment grade" by S & P; Quality is clearly not a consideration in this TDF.

Equity Total = 49%; Income Total = 51%; TOTAL PROGRAM "SEC" YIELD = 2.07% .

Note that, if you do the math using the SEC yields of the five funds, the actual income at this asset allocation is just 1.33%. The Expense Ratio works out to be 0.1689%. The anemic yields are likely after expenses. 

So, if your Million Dollar 401k/IRA is in this TDF, you receive roughly $1,110 per month in taxable spending money. Higher withdrawal amounts require share liquidations, reducing capital and future income.

 Any idea how an RIA (Registered Investment Advisor) would be crucified for publishing such "misleading" information?

How many of you have received letters encouraging you to stay put after retirement because these funds are so cheaper... well, "you gets what you pays for".

My wife's, $270k IRA generates more income (after an estimated 1.5% ER) than a million bucks in this TDF... one that has kidnapped nearly  $20 Billion in retirement plan assets.

• Why does the DOL focus on fund expenses and value growth, but NEVER on income?
• Why aren't the major Wall Street product creators considered advisor-fiduciaries?

 Over seven years, the TDF asset allocation morphs into a replica of the company's Target Retirement Income Fund. Here’s the 11/05/15 content of the that product:

• Total Stock Market Index Fund …………....…..18.2%
• Total International Stock Index Fund ………...11.6%
• Total Bond Market II Index Fund ……………....37.6%
• Total International Bond Index Fund……….…15.9
• Short Term Inflation-Protected Index Fund....16.7%

Equity Total = 30%;  Income Purpose Total = 70%; TOTAL PROGRAM "SEC" YIELD = 2.00%

Again, if you do the math, the income at this more conservative allocation would be 1.38%, with a lower ER, 0.165%. Net effect: a $40 monthly bonus.

Hmmm, with roughly 25% of the dollars, my bride's IRA generates an RMD beating $1,500 per month with a 28.8% equity asset allocation... the $1,500 compounds at roughly 6% in tax free bond Closed End Funds (CEFs).

What's an investor to do, knowing that six times more cash flow is available... but not in SEC and DOL "protected" programs?

You aren't as stuck as you think, not in a self directed IRA or 401k program and not when a rollover becomes possible. You just can't entrust your nest eggs to the "Wolves of Wall Street".

 Here's an alternative five Closed End Fund portfolio (selected from seventy candidates with both higher and lower yields... three are in my wife's portfolio plus 25 other positions).

The following security descriptions ARE NOT recommendations of any kind.

Nuveen Quality Preferred (JPS) Yield = 7.5%, ER = 1.64%; Dividends since 2002, 239 positions

Franklin Universal (FT) Yield = 7.7%, ER = 1.9%; Dividends since 1993: 119 positions

Eaton Vance Global Dividend (ETO) Yield = 9.55%, ER = 1.5%; Dividends since 1904, 171 positions

PIMCO Income Strategy (PFN) Yield = 10.3%, ER = 1.13%; Dividends from 2005, 263 positions

Blackrock Taxable Muni (BBN) Yield = 7.7%, ER = 1.18; Dividends from 2010, 129 positions

What do we come up with by replacing the Retirement Income Fund with these five professionally managed CEFs? (You can research and select from hundreds of CEFs at cefconnect.com.)

 Note that a simple 20% per CEF weighting would produce more total income IN EACH FUND than produced by the entire "master of the universe" portfolio.

• Franklin Universal …………….15.0% (119 positions)  (yield = 7.7%)
• Eaton Vance Global .......……...15.0% (171 positions)  (yield = 9.6%)
• PIMCO Income II ................…...23.3%  (yield = 10.3%)
• BlackRock Taxable Muni ..........23.3%  (yield = 7.7%)
• Nuveen Quality Preferred .........23.4%  (yield = 7.5%)

Equity Total = 30%; Income Total = 70%; TOTAL PROGRAM YIELD = 8.50%

If your Million Dollar Portfolio is in this program, you will have 6 times the spending  money... $85,000 instead of $13,800, after fund expenses. You can get professional MCIM for a tax deductible (check with your CPA)1.4%, or less.

So what would you prefer: $62,800 after all fees, expenses, and 25% federal taxes or the cheap and easy Target Date Retirement Fund net/net, after tax, payout of a DOL approved$10,350?

The DOL is waiting for you to thank them for their concern and protection... 1.3% after expenses is better than 8.5%, right?