A recent benchmarking report by investment firm T. Rowe Price analyzes participants’ relationship with target-date options.
The annual benchmarking study found that participants rely heavily on target-date investments to fund their retirement. According to the findings, participants who invest solely into a target date product are 20 times less likely to make an exchange. Even when they do, 84% exchange into another target-date fund.
Investors are likely committed to the fund because of its tendency to produce little risk while offering a hands-off approach to investments. “Target date investments continue to achieve their designated purpose, giving participants an option that doesn’t require they actively monitor their allocations,” the report stated.
A small percentage of near-retired participants were also invested in different target years, instead of their assumed full retirement age (FRA) of 65. T. Rowe Price found that 23% of participants ages 63 and older are currently invested in a target year that differs from their retirement age.
These findings suggest a potential need for personalized target date solutions, T. Rowe Price reports. Personalized target-date funds, typically seen as a step-up to general TDF solutions, have risen in popularity over the years as investors call for tailored investment options. While managed accounts offer personalization, these investments tend to be more expensive, whereas a personalized TDF could run clients just a few basis points more than what they’re already charged with a traditional option.
As a result, more fund managers have entered the market with personalized target-date solutions. Looking forward, T. Rowe Price anticipates seeing a push for more of these solutions from participants.
“Our purpose in delivering this report is simple: to equip plan sponsors and financial consultants with the insights they need to improve the financial futures of their participants,” said Francisco Negrón, head of Retirement Plan Services at T. Rowe Price, in a statement.
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Personalized Target Date Accounts Provide Ability to Manage Risk Preferences
Amanda Umpierrez is the Managing Editor of 401(k) Specialist magazine. She is a financial services reporter with nearly a decade of experience and a passion for telling stories and reporting news. She is originally from Queens, New York, but now resides in Denver, Colorado.