Why Target Date Fund Retirement Investors Save More

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NEW YORK (MainStreet) — Workers investing in a target date retirement fund feel more confident about investing and meeting their goals than those that don't use target date funds (TDFs), according to a recent survey from ING Investment Management.

"These funds are designed to provide investors with one investment solution whose asset allocation mix becomes more conservative as the investor approaches retirement age, auto-rebalancing for the investor," said Marianne Sullivan, head of investment information services with ING.

About 64% felt they could turn their plan savings into an income stream at retirement compared with just 43% of non-TDF investors and 68% using TDFs reported that the investment alleviated stress around retirement planning and increased their confidence that they were making good investment decisions.

The ING study further found that TDF investors contribute more to their retirement plans with 42% contributing more than 11% of their income compared to only 23% for those who do not invest in TDFs.

"The appeal of target date funds is that they are designed to simplify saving for investors who prefer to put their investment portfolios on autopilot," Sullivan told MainStreet.

However there are risks as with all stock market investments.

For example, in the process of being a one-size-fits-all solution, many target date funds forsake risk tolerance. "They don't protect against the risk of an investor not saving enough to support himself or herself over a lifetime regardless of the target date fund return," said Sullivan.

The top performing target date retirement funds include Manning & Napier 2045 returning 19.50% year to date for one year, Schwab Target 2055 returning 18.18%, AllianceBernstein 2055 Retirement returning 18.06%, American Funds 2040 returning 18.04% and T. Rowe Price Retirement 2035 returning 17.9%, according to Morningstar. The ING Index Solution 2055 returned 17.22%.