Boomers Abandoning TDFs at or Near Retirement

There are strategies to help retirees create a lifetime income stream that can reverse this trend.

By Rebecca Moore and John Manganaro | April 11, 2017
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In aggregate, across target-date fund (TDF) providers and funds, all vintage years between 2060 and 2020 experienced an increase in total AUM during 2016; however vintage year funds that had passed their target years experienced a decrease in total AUM, according to the March 2017 Target-Date Trends report from Mercer

Neil Lloyd, head of U.S. DC and Financial Wellness Research at Mercer, who is based in Vancouver, tells PLANADVISER Mercer noticed the same trend last year and it happens year over year. Pre-retirees and retirees are moving their money out of TDFs near or at retirement.

Lloyd notes that TDFs are designed for a homogenous group of people. “If you look at a 20-year-old with not much assets, it makes sense to invest assets highly in equities, but if you have one 60-year-old with $500,000 in assets and another with $2 million, the situation is more complex, and something more tailored to each situation makes sense,” he explains.

“We can’t say at a high percentage what the reason is, but we are pretty sure Boomers are moving their assets to IRAs,” he adds.

It stands to reason that some target-date fund investors may be leaving the products (and their workplace plans in general) in order to start formally structuring retirement income. In a recent conversation with PLANADVISER, centered on MetLife’s “Paycheck or Pot of Gold Study,” Roberta Rafaloff, vice president, institutional income annuities, suggested that the first wave of defined contribution (DC)-focused Baby Boomer retirement plan participants are now hitting full retirement age. The group is quickly setting and defining new trends in terms of how retirement wealth will be treated post-employment.

Lloyd predicts a change in the future. Mercer is seeing more plan sponsors encouraging people to keep assets in their plans. IRAs tend to be more expensive, and staying in the plan can help participants incur lower fees. In addition, he says, the conflict-of-interest rule from the Department of Labor (DOL) will make rolling over assets more challenging in the past and may encourage participants to stay in their plans.

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