Income as the Outcome: Sustaining Your Participants Throughout Retirement
The COVID-19 pandemic has shaken markets and led many investors to re-evaluate their financial plans. People are rightly concerned over public health, the economy and the safety of their family and friends. In these circumstances, defined contribution (DC) plan participants who are near retirement may wonder whether they need to postpone retirement or if they will be forced to retire earlier than expected.
Target-date funds (TDFs) help guide investors throughout their careers and throughout retirement. But recent market volatility may have sown doubt among plan participants about the stability and security of their investments, including TDFs. How might plan sponsors help participants who are in or near retirement maintain confidence in their retirement strategies?
We believe target-date solutions should focus on retirement income. By contrast, most traditional TDFs aim solely to grow account balances while using short-term fixed income to reduce the risk of losses. This approach is fine when individuals want to accumulate wealth or save for a one-time purchase. However, when planning for retirement income, a wealth preservation strategy is less ideal because it is not designed to manage market, interest rate and inflation risks during the asset accumulation and decumulation phases.
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Robert J. Pyle, CFP®, CFA is president of Diversified Asset Management, Inc. (DAMI). DAMI is licensed as an investment adviser with the State of Colorado Division of Securities, and its investment advisory representatives are licensed by the State of Colorado. DAMI will only transact business in other states to the extent DAMI has made the requisite notice filings or obtained the necessary licensing in such state. No follow up or individualized responses to persons in other jurisdictions that involve either rendering or attempting to render personalized investment advice for compensation will be made absent compliance with applicable legal requirements, or an applicable exemption or exclusion. It does not constitute investment or tax advice. To contact Robert, call 303-440-2906 or e-mail info@diversifiedassetmanagement.com.
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