Statistics show that average retirement plan balances have almost doubled over the past decade, and a large portion of it is now contained in target-date funds. According to Fidelity data, more than half of 401(k) plans hold 100% of their funds in target-date funds.
Target-date funds are tailored to an age and retirement year of the individual account owner, which means that, for instance, if a 2050 target-date fund is invested by someone in their 30s, the retirement age will be 67. Yet such funds adjust your equity, as you get closer to retirement date, they’re not good for everyone. However, the majority of employers use them as the default option.
Although having target date funds in a retirement account is a good starting point, alternative options should be considered by participants as well, as they accumulate assets. Additionally, as Meghan Murphy, vice president of Fidelity Investments, said, target-date funds can be used to prevent retirement plans from having extreme asset allocations, for example, if they contain too many equities or if they lack them.