American Funds Target Date Retirement

Date:

American Funds Target Date Retirement Series

Target Date Funds: Americaâs #1 Retirement Investment Dual View

Investments in American Funds target date funds are allocated among a diversified portfolio of stocks and bonds. Investors select a target date fund, typically the one nearest their anticipated retirement date. Over time, that fund’s mix of stocks and bonds will shift toward more conservative investments. This gradual shift over time is called a “glide path.”

Heres how it works:

  • Significant stock investments throughout the lifetime of your fund can help manage the risk of outliving your savings in retirement.
  • An increased emphasis on bonds as you near your retirement date can help manage the risk of market declines.
  • The fund is managed beyond retirement, so you could feasibly use a single fund for decades.

Our objective-based glide path

Although the target date portfolios are managed for investors on a projected retirement date time frame, the allocation strategy does not guarantee that investors’ retirement goals will be met. Investment professionals manage the portfolio, moving it from a more growth-oriented strategy to a more income-oriented focus as the target date gets closer. The target date is the year that corresponds roughly to the year in which an investor is assumed to retire and begin taking withdrawals. Investment professionals continue to manage each portfolio for approximately 30 years after it reaches its target date.

Looking For A Financial Advisor

Get In Touch With A Pre-screened Financial Advisor In 3 Minutes

0.64%

The T. Rowe Price 2060 Fund allocates 90% to equities and 10% to cash and bonds. While the cost of this target date fund is on the high side at 71 basis points, its five-year performance comes in at 12.74%.

T. Rowe Prices target date fund owns more than 20 different mutual funds to implement its investment strategy.

Of the funds that made our list, T. Rowe Price takes the most aggressive approach at retirement. Its 2020 fund has a 60% weighting in stocks. While some would argue that 60% is too aggressive for a retiree, its consistent with research on the 4% rule. The fund, however, continues to reduce equities in retirement, ending with an equity allocation of about 35%.

Transparency Is Our Policy Learn How It Impacts Everything We Do

Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.

Wed like to share more about how we work and what drives our day-to-day business.

Read Also: How To Invest For Retirement At Age 40

Read Also: Can I Retire At 60 With 3 Million Dollars

Why Consider This Fund

  • You want the opportunity to remain in the same portfolio after the target date is reached
  • You want one-step diversification with exposure to domestic stocks, international stocks and fixed-income securities
  • Youve considered your risk tolerance and want your asset allocation to become more conservative over time, but still provide growth after your retirement date to protect against longevity risk
  • You want an actively managed asset allocation portfolio investing in actively managed underlying funds

How We Make Money

American Funds Target Date Retirement Series®

We sell different types of products and services to both investment professionals and individual investors. These products and services are usually sold through license agreements or subscriptions. Our investment management business generates asset-based fees, which are calculated as a percentage of assets under management. We also sell both admissions and sponsorship packages for our investment conferences and advertising on our websites and newsletters.

Recommended Reading: How Much Should My 401k Be When I Retire

What You Need To Know

  • Capital Group and Morningstar have teamed for the first time on a target date offering.
  • Target Date Plus launches this month.
  • The service incorporates an investors age, salary, assets, savings rate and company match rate.

Capital Group and Morningstar Investment Managements Workplace Solutions group subsidiary teamed up to offer a new target date service, Target Date Plus, that the companies said Monday was designed to provide personalized allocation advice tailored to a retirement investors specific needs and objectives.

The service incorporates an investors age, salary, assets, savings rate and company match rate, according to the companies.

Morningstar analyzes that information and provides the investor with a customized asset allocation and investment portfolio, the firms said. Morningstar can also inform the investor if and when they may benefit from annuitizing part of their savings.

The service launches this month available to recordkeepers that currently have Morningstars Retirement Manager available on their platform, as well as those who are working towards enabling the service, a Capital Group spokeswoman told ThinkAdvisor.

This represents the first time in which Capital Group has teamed with Morningstar on target date offerings, she added.

The Latest

The necessary data points are obtained by Morningstar from recordkeepers to furnish and build out a personalized asset allocation and fund-level portfolio for each investor, the companies explained.

Benefit From Professional Oversight And A Commitment To Low Fees

Low fees are crucial to positive investor outcomes

There are fees and expenses associated with investing through an employers retirement plan. High investment fees and costs can reduce your long-term retirement savings. The lower the costs, the better it is for you.

Experience can make a difference

Our Target Date Solutions Committee brings a diversity of experience and draws on the fundamental research and quantitative resources of the global Capital Group team.

An emphasis on stocks

Our approach to allocating between stocks and bonds puts more emphasis on stocks than some other target date funds. This helps manage the risk of investors outliving their savings. We also place a greater emphasis on dividend-paying stocks in an effort to provide more equity exposure while managing volatility.

Investment professionals invest alongside you

In addition to managing the funds, our investment professionals invest their own money in the funds.

Don’t Miss: Luxury Retirement Communities San Diego

Investors Are Suing Companies Over This Poor

Target-date funds may be cramping your retirement.

Between July 29 and Aug. 2, lawyers representing current and past participants in six separate retirement plans filed suit against their employers and plan fiduciaries, charging that the BlackRock target-date funds in the plans performed worse than other popular target-date funds. Those lawsuits come four months after mutual fund giant Vanguard was served with a class-action suit charging that Vanguard mismanaged some of its target-date funds to the point where the investors where slammed with excessive tax bills.

In addition to the legal actions, two recently issued reports cast doubt on investing in target-date funds in retirement, charging that such funds often carry too much risk for retired investors. The reports, from research firm Morningstar and Boston Colleges Carroll School of Management and the TIAA Institute, found that the funds dont provide the flexibility and guidance older investors often need, and that the equity exposure in target-date funds exposes retirees to too much risk. Is it time to cut bait if youre invested in TDFs and look for an alternative?

Want help managing your retirement savings? Consider working with a financial advisor.

What Are Target-Date Funds?

And TDF popularity is soaring: whereas only 19% of 401 plan participants had target date funds in 2006, percentage rose to56% by the end of 2018, according to the EBRI/ICI 401 database.

Target-Date Fund Disadvantages

Bottom Line

Notes & Data Providers

Target-Date Funds: How They Work & How They Might Affect You

Stocks: Real-time U.S. stock quotes reflect trades reported through Nasdaq only comprehensive quotes and volume reflect trading in all markets and are delayed at least 15 minutes. International stock quotes are delayed as per exchange requirements. Fundamental company data and analyst estimates provided by FactSet. Copyright © FactSet Research Systems Inc. All rights reserved. Source: FactSet

Indexes: Index quotes may be real-time or delayed as per exchange requirements refer to time stamps for information on any delays. Source: FactSet

Data on U.S. Overview page represent trading in all U.S. markets and updates until 8 p.m. See Closing Diaries table for 4 p.m. closing data. Sources: FactSet, Dow Jones

Stock Movers: Gainers, decliners and most actives market activity tables are a combination of NYSE, Nasdaq, NYSE American and NYSE Arca listings. Sources: FactSet, Dow Jones

ETF Movers: Includes ETFs & ETNs with volume of at least 50,000. Sources: FactSet, Dow Jones

Bonds: Bond quotes are updated in real-time. Sources: FactSet, Tullett Prebon

Currencies: Currency quotes are updated in real-time. Sources: FactSet, Tullett Prebon

Cryptocurrencies: Cryptocurrency quotes are updated in real-time. Sources: CoinDesk , Kraken

Calendars and Economy:Actual numbers are added to the table after economic reports are released. Source: Kantar Media

Don’t Miss: Recommended Retirement Savings By Age

American Funds 2010 Target Date Retirement Fund Vs S& p Target Date 2010 Index

For those in retirement, our 2010 vintage has delivered an average annual excess return of 0.52%.

Scenario philosophy:This simulation approximates the experience of a late-career participant who invested in the Series at its inception in February 2007 before retiring in 2010.

Assumptions:Salary: $100,000 per year initially growing by 3% annually until retirement on January 1, 2010.Initial investment: $800,000 on February 1, 2007.Contribution rate: 10% annual contribution starting February 1, 2007 until retirement on January 1, 2010.Withdrawal rate: 4% withdrawal of $800,000 increasing by 2% per year.

AFTD excess return is calculated as the difference in return between the American Funds 2010 Target Date Retirement Fund and S& P Target Date 2010 Index. Returns are time-weighted . Market indexes are unmanaged and, therefore, have no expenses. Investors cannot invest directly in an index. There have been periods when the fund has lagged the index.

The American Funds 2010 Target Date Retirement Fund is managed as a through retirement fund. For a comparison to a broader universe, we compare the American Fund to the S& P Target Date 2010 Index which includes target date funds managed both to and through retirement. Over the same period, the S& P Target Date 2010 Through Index had an average annual return of 5.64% and the American Fund had a total excess return of 0.06%. For additional American Fund results compared to its benchmark, .

Morningstar Category Percentile Sharpe Ratio Rankings

*Sharpe ratio uses standard deviation and returns to determine the reward per unit of risk. The higher the ratio, the better the portfolios historical risk-adjusted performance.Source: Capital Group, using Morningstar data as of June 30, 2022. Percentile rankings are calculated by Morningstar and reflect relative performance versus peers. A lower number is better: First percentile indicates a funds performance was in the top 1% of its peer group.

All funds began on February 1, 2007, except for 2055 , 2060 and 2065 . Rankings are based on the funds average annual total returns within the applicable Morningstar categories and dont reflect the effects of sales charges, account fees or taxes. Past results are not predictive of results in future periods. Category averages include all share classes for the funds in the category. While American Funds R-6 shares dont include fees for advisor compensation and service provider payments, the share classes represented in the Morningstar category have varying fee structures and can include these and other fees and charges, resulting in higher expenses and lower returns.

Also Check: Sun City Retirement Community California

Effect Of Other Investments

Investors who have their assets in a target retirement fund need to be aware of how other retirement investments could skew their asset allocation. For example, if a target fund has an 80% stock and a 20% bond asset allocation, but the investor purchases a certificate of deposit with 10% of their retirement assets, this effectively decreases the stock allocation of the investor’s overall portfolio and increases the bond allocation.

How We Use Your Personal Data

American Funds Target Date Retirement Series®

How we use your information depends on the product and service that you use and your relationship with us. We may use it to:

  • Verify your identity, personalize the content you receive, or create and administer your account.
  • Provide specific products and services to you, such as portfolio management or data aggregation.
  • Develop and improve features of our offerings.

To learn more about how we handle and protect your data, visit our privacy center.

Recommended Reading: Rocky Ridge Retirement Hoover Al

Read Also: Cypress Lakes Retirement Community Lakeland Florida

Seeking To Build And Preserve Wealth

Our Series adapts to changing participant needs by adjusting both its stock/bond mix and the types of assets held through each stage of life.

Our Series adapts to changing participant needs by adjusting both its stock/bond mix and the types of assets held through each stage of life.

Early career

Seek to grow wealth and manage risk with predominantly growth-oriented equities and a prudent allocation to defensive bonds.

American Funds Target Date Retirement Series glide path approximation

Mid-career

Begin to balance growth and income via diversified fixed income and dividend-paying equities.

American Funds Target Date Retirement Series glide path approximation

In retirement

Seek to preserve wealth and deliver sustainable income with less-volatile dividend-paying equities and higher quality bonds.

American Funds Target Date Retirement Series glide path approximation

The target allocations shown are as of July 31, 2022, and are subject to the oversight committees discretion. The investment adviser anticipates assets will be invested within a range that deviates no more than 10% above or below the allocations shown in the prospectus/characteristics statement. Underlying funds may be added or removed during the year. Visit capitalgroup.com for current allocations.

Morningstar Category Percentile Return Rankings

All funds began on February 1, 2007, except for 2055 , 2060 and 2065 . Rankings are based on the funds average annual total returns within the applicable Morningstar categories and dont reflect the effects of sales charges, account fees or taxes. Past results are not predictive of results in future periods. Category averages include all share classes for the funds in the category. While American Funds R-6 shares dont include fees for advisor compensation and service provider payments, the share classes represented in the Morningstar category have varying fee structures and can include these and other fees and charges, resulting in higher expenses and lower returns.

For a list of each funds Morningstar category, please see the Morningstar categories section. Categories include active, passive and hybrid target date funds, as well as those that are managed both to and through retirement. Approximately one-third of the funds within the 20002010 category have a target date of 2005. In an effort to manage the risk of investors outliving their savings while managing volatility, our approach to allocating between stocks and bonds puts more emphasis on stocks than some other target date funds.Investment results assume all distributions are reinvested and reflect applicable fees and expenses. When applicable, results reflect expense reimbursements, without which they would have been lower.

Also Check: Things To Do After You Retire

Investment Objective And Policies

Depending on the proximity to its target date, the fund will seek to achieve the following objectives to varying degrees: growth, income and conservation of capital. The fund will increasingly emphasize income and conservation of capital by investing a greater portion of its assets in bond, equity-income and balanced funds as it approaches and passes its target date. In this way, the fund seeks to balance total return and stability over time.

How American Funds Target Date Retirement Portfolios Work

The Target-Date Fund: A Better Way To Invest For Retirement | Better | NBC News

American Funds Target Date Retirement Portfolios, a Target Date asset allocation option, are designed to take you through retirement.

The asset mix of each Portfolio is based on a target date. This is the expected year in which participants in a Portfolio plan to retire and no longer make contributions. A team of asset allocation professionals adjusts each Portfolios make-up over time to ensure a noticeable and steady shift from equities to fixed income in the years leading to retirement.

The American Funds Target Date Retirement Portfolios are composed of actively managed funds and are managed to help retain your potential for growth, and aim to preserve the value of your assets at and after retirement.

As each Portfolio glides over time, its asset mix is adjusted. Looking at the image below:

  • Designed to take you through retirement
  • Portfolios maintain meaningful equity exposure to help you manage the risk of outliving your savings
  • Each funds investment allocation gradually transitions from a growth-oriented approach to a more income-oriented focus as the fund approaches and passes its target retirement date.

Also Check: Moose Retirement Home In Florida

A Portfolio That Adjusts As Participants Careers Progress

At Voya, our glide path relative to peers has a higher equity allocation for younger participants to build wealth and a lower equity allocation for participants near and in retirement to reduce risk in those critical years. Younger participants can afford to take on more investment risk in exchange for greater potential returns. However, in the later years, participants are more vulnerable to a market downturn, particularly the day they retire.

The Portfolio may periodically deviate from the Target Allocation, generally within the range of +/- 10% relative to the current Target Allocation. The sub-adviser may determine to deviate by a wider margin in order to protect the Portfolio, achieve its investment objective, or to take advantage of particular opportunities. This chart is for illustrative purposes only and may not reflect the current allocations of the Voya Target Solution Trust Series. This illustration is intended to show how the Voya Target Solution Trust Series transitions over time.

Dont Miss: Should You Use Your Retirement To Pay Off Debt

American Funds 2030 Target Date Retirement Fund Vs S& p Target Date 2030 Index

For those in transition, our 2030 vintage has delivered an impressive 1.31% in average annual excess return.

Scenario philosophy:This simulation approximates the experience of a mid-career participant who invested in the Series at its inception in February 2007 and expects to retire in 2030.

Assumptions:Salary: $65,000 per year initially growing by 3% annually.Initial investment: $150,000 on February 1, 2007.Contribution rate: 10% annual contribution starting February 1, 2007.

AFTD excess return is calculated as the difference in return between the American Funds 2030 Target Date Retirement Fund and S& P Target Date 2030 Index. Returns are time-weighted . Market indexes are unmanaged and, therefore, have no expenses. Investors cannot invest directly in an index. There have been periods when the fund has lagged the index.

The American Funds 2030 Target Date Retirement Fund is managed as a through retirement fund. For a comparison to a broader universe, we compare the American Fund to the S& P Target Date 2030 Index which includes target date funds managed both to and through retirement. Over the same period, the S& P Target Date 2030 Through Index had an average annual return of 7.03% and the American Fund had a total excess return of 0.88%. For additional American Fund results compared to its benchmark, .

You May Like: Is 401k The Same As Retirement

Share post:

Popular

More like this
Related

Sign Up For Ssi Retirement

Do Social...

How Should My Retirement Portfolio Be Balanced

Candidates For...

Wells Fargo Retirement Phone Number

Why Does...