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  • Are Target Date Funds The Easy Bake Option?

    Author(s)
    Basu, AK
    Doran, BM
    Drew, ME
    Griffith University Author(s)
    Doran, Brett M.
    Year published
    2013
    Metadata
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    Abstract
    Target date funds provide a simple, automated approach to retirement savings in defined contribution plans. The passing of the Pension Protection Act of 2006 has seen an increase in the popularity of these funds in the United States, becoming the default option for many plans. However, recent research findings have challenged the easy bake or 'set-and-forget' nature of target date funds. This study explores some of the critical design features of target date funds (which shifts an individual's asset allocation from growth to defensive assets following a pre-set glidepath) against a simple balanced (or target risk) fund design. ...
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    Target date funds provide a simple, automated approach to retirement savings in defined contribution plans. The passing of the Pension Protection Act of 2006 has seen an increase in the popularity of these funds in the United States, becoming the default option for many plans. However, recent research findings have challenged the easy bake or 'set-and-forget' nature of target date funds. This study explores some of the critical design features of target date funds (which shifts an individual's asset allocation from growth to defensive assets following a pre-set glidepath) against a simple balanced (or target risk) fund design. Using both time-weighted and dollar-weighted returns, our results suggest that there is more to achieving successful retirement outcomes than the investor simply selecting a proposed year of retirement. Our findings can perhaps be summarized by Einstein's famous epithet, that in the murky world of retirement product design, everything should be made as simple as possible, but not simpler.
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    Journal Title
    Journal of Financial Services Marketing
    Volume
    18
    Issue
    3
    DOI
    https://doi.org/10.1057/fsm.2013.13
    Subject
    Finance
    Marketing
    Publication URI
    http://hdl.handle.net/10072/56342
    Collection
    • Journal articles

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