Best Target Date Retirement Funds

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Contributor, Benzinga
March 11, 2022

Choosing several investments to build a successful retirement portfolio requires expertise and contains high risk. Planning for retirement would be much easier if one fund took care of it. It’s called the target date retirement fund.

Setting yourself up for a comfortable retirement requires you to choose one target date fund that matches your time horizon. If you’re uncertain of the exact year you want to retire, a target date fund guides you.

The fund you choose will help determine when you retire. After you’ve picked a target date, the investment company manages the fund to achieve your objective.   

 

The Best Target Date Retirement Funds

You have to analyze several aspects of a company where you plan to invest in a retirement fund. Some things to consider are management fees, type of assets management buys and how it allocates them over time.

Analyzing all the companies and their offerings is time-consuming, so Benzinga made it convenient by comparing the top funds.

Fidelity

Fidelity’s target date retirement fund is called the Freedom Fund. It’s set up to grow your savings so that your retirement is how you expect it to be. You choose the target date for your retirement, and Fidelity National Financial Inc. (NYSE: FNF) offers the nearest Freedom Fund. 

If you plan to retire in 20 years, you get the Freedom Fund 2040. Fidelity shows you the portfolio breakdown. In this case, more than half of the portfolio would be in domestic equities and the rest in international equities and bonds. It provides an asset relocation strategy based on your age to minimize risk near retirement.

Some of Fidelity’s retirement funds have an expense ratio of 0.12%. The main advantage of choosing Fidelity is that it offers one of the lowest management fees. As with all investment companies, Fidelity doesn’t guarantee your fund will generate sufficient retirement income. 

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Charles Schwab

Charles Schwab Corp. (NYSE: SCHW) divides funds into five-year vintages, allowing investors to choose the fund closest to retirement. During the investment years, management adjusts the fund’s asset mix, which becomes more conservative near the target date and income-orientated.

The company doesn’t charge fees for mutual fund transactions. The 2040 Fund has a net expense ratio of 0.60%. After you decide on a fund, Charles Schwab doesn’t allow you to adjust allocations if your risk tolerance changes. 

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Vanguard

You need at least $1,000 to invest in Vanguard’s target retirement fund. The perk of investing with Vanguard Total Stock Market (NYSEARCA: VTI) is that its retirement fund expense ratio is 78% less than the average.

The Vanguard Target Retirement 2060 Fund has an expense ratio of 0.08% and has provided a five-year trailing return of 11.5%. Vanguard stated that its target date funds (TDFs) provided higher returns and less volatility than their peer averages. 

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State Street

The State Street Target Retirement 2060 Fund has a net expense ratio of 0.09%. Investors should note that State Street’s expense ratio could increase to 0.89% after Apr. 30, 2022. The fund had historically provided a five-year trailing return of 11.9% and a three-year trailing return of 14.7%. 

State Street Corporation (NYSE: STT) allocates 90% of the portfolio to stocks and 10% to bonds. Its allocation shifts toward bonds for five years after reaching the target date. The investment firm believes this approach helps people not to tap into their retirement funds until required minimum distributions (RMDs) are required. It allocates 35% to stock and alternatives after the target date. 

JP Morgan

JP Morgan clients can choose between the SmartRetirement or the SmartRetirement Blend funds. The standard account is an all-in-one diversified investment to improve retirement accounts. The Blend combines the lower cost of passively-managed strategies and active management.

JP Morgan offers Blend funds in five-year vintages; the earliest is Blend 2020 and the longest is Blend 2060.

What to Look for in Retirement Funds

The best investment companies provide certain services that optimize the chances of growing your retirement fund.

Advisors: Monitoring and reassessing the fund’s performance is a crucial task that advisors need to perform. Your advisor needs to be a professional with years of experience managing funds. And they should look out for your best interests.

The advisor should possess relevant knowledge to answer your questions and build a portfolio that meets your needs. Advisors should be certified and affiliated with a reputable company. 

Quality customer care: When the market is volatile, customers need assurance from their portfolio managers that everything will be fine. That’s one of the reasons an investment company needs to be available to take your call or reply to emails timely.

You should be able to reach a support center or your portfolio manager easily to address concerns. The way a management company attends to your queries is indicative of how they’ll manage your fund.

Proven results: The point of investing in a fund is to grow it so that you enjoy your retirement. To optimize the possibility of that outcome, you need to invest with a company that has a good track record for managing funds. Remember that past performance is no guarantee of future results.

Management companies should make their investing returns available. How they plan to build your portfolio and rebalance it should be transparent. You’re investing your money, so you have the right to ask any question that will calm your nerves. 

Benefits of Setting a Retirement Target Date

Knowing when you’re going to retire allows you to work backward to determine a starting point. It grants you insight into how much risk you can handle and the amounts you need to contribute, as well as other benefits.

Creating goals for your family: You need an investing goal. A retirement target date affords your family the luxury to know how they will structure their lives when the time arrives and what you’ll be able to afford. 

Knowing your financial position during retirement indicates if your family goals are achievable. 

Understanding how long it will take to save for retirement: Setting a target date shows you the number of years you have until retirement. Knowing that period allows you to calculate your monthly contributions to reach your goal and the risk level you can take.

The period enables your family to plan expenses and, if needed, to adjust their lifestyles so that you can meet your retirement goals.

Opening a discussion with your broker or advisor: Choosing a target date may prompt you to contact an advisor for more information. Receiving more knowledge about a retirement fund and its prospects is a good way to begin your investment journey.

Speaking to a professional will make you aware of the retirement fund’s target return, fees and risk.

Disadvantages of Setting a Target Date for Retirement

Determining a retirement date and sticking to it can back you into a corner. Unforeseen events happen that can make your retirement goals daunting.

Pressure: The less time you have toward meeting retirement goals, the more pressure you’ll feel. That can lead you to make hasty decisions you’ll regret. The pressure can overwhelm you so much that you don’t enjoy investing for retirement.

Know that you can adjust the retirement date to ease the pressure.

Times change: Most investors account for possible risks, but they might not consider extremes such as war and a portfolio plummeting to zero — both have happened. Although you diversify to minimize risks, world events can dampen your plans. Those are out of your control, so predicting the future is impossible.  

You might change your mind: As your retirement approaches, it’s understandable to change your mind about the date. You might be in a position to retire earlier, or you may need to work a few more years because of a lack of funds. Sticking to a decision for a long period is challenging. 

Compare Brokers

Benzinga has made the process of choosing the best broker easier by providing a list of the top performers.

  • Facet Wealth Retirement
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    $1,200 to $6,000/year, depending on acct type
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  • SmartAsset
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    Depends on Advisor
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  • bitcoinIRA
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    1 time investment fee depends on acct
    Account Minimum
    $3,000
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  • iTrustCapital
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    1% fee
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    $1,000
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  • Charles Schwab Retirement
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    There are no fees to open or maintain your account.
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    $0
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    Other account fees, fund expenses, and brokerage commissions may apply.

Frequently Asked Questions

Q
Are target date funds a good investment?
A

They are good for investors who want to determine how much time they have until retirement. It’s also beneficial to investors who want a single account that works toward growing their retirement. Target date funds help investors set goals.  

Q
How do I pick a retirement target date?
A

You should compare various retirement funds to determine the lowest fees, potential returns and potential risk. The fund you choose will determine your target date. Your finances will also determine how much you can invest to reach your retirement goals.