Another key finding is that most participants withdraw their entire account balances shortly after they stop working. As of 2011, 83% of participants have withdrawn their entire account balance within just three years of retirement. This has significant implication for the "to" versus "through" glidepath debate in the target date fund industry, as it relates to contention over the appropriate level of equity risk at the point of retirement. These withdrawal figures suggest that maintaining outsized equity allocations in years leading up to retirement subjects participants to unnecessary and dangerous risks just as they are most prone to withdraw their assets."It's risky for target date funds to rely heavily on equities, but at the same time they can't curtail long-term return potential by being too conservative. We think the solution is to increase risk efficiency through broader asset class diversification, such as incorporating high yield, direct real estate, emerging market equity and debt and other asset classes to lower expected volatility without sacrificing return potential," said Daniel Oldroyd, Portfolio Manager of JPMorgan SmartRetirement target date strategies, J.P. Morgan Asset Management Global Multi-Asset Group. "A stronger risk-adjusted return profile can also help mitigate the long-term impact of these negative participant behaviors, such as loans and contribution shortfalls, that we see occurring increasingly among savers."
J.P. Morgan Asset Management Finds Some Target Date Funds Overlook Critical Factors
Check Out Our Best Services for Investors
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Model portfolio
- Stocks trading below $10
- Intraday trade alerts