Target-date funds do not stop when they reach the target year. For example, Vanguard Target Date 2015 (VTXVX) still exists today even though it is 2020. Your dollars will not disappear!

Instead, target-date funds are designed to continue to serve the assumed age demographic of a specific retirement year. To provide a deeper understanding, we have outlined what will happen to 2020 target-date funds.

Target-date funds are designed one of two ways:

1. “Through” target-date funds: Continue to shift their asset mix (less stocks, more bonds) over a predetermined number of years. The dollars invested in a target-date fund will remain inside the fund.

2. “To” target-date funds: Reach the designated target year and merge with a retirement fund that maintains a specified asset allocation over time.

Either way – “through” or “to” target-date funds continue to be invested, and there is no required action-item for investors once the target year is reached.

2020 Target-Date Fund ExampleS

Since 2020 is a target year; let us look at what will happen to popular target-date funds.

Vanguard Target Retirement 2020 (VTWNX)

Vanguard’s glide path continues through for seven years (in this case 2027) until the asset allocation is 30% stocks and 70% bonds. After the seventh year, dollars merge into Vanguard Target Retirement Income (VTINX).

Fidelity Freedom 2020 Fund (FFFDX)

Fidelity Freedom’s glide path continues through for nearly twenty years (in this case 2040) until the asset allocation is 24% stocks and 76% bonds. After that, dollars merge into Fidelity Freedom Income (FFFAX).

T.Rowe Retirement 2020 Fund )TRRBX)

T.Rowe’s glide path continues through for thirty years (in this case 2050) until the asset allocation is 20% stocks and 80% bonds. These dollars do not merge with another fund, but instead maintain this asset allocation until the investor withdraws all dollars from the account.

AGAIN, YOUR DOLLARS WILL CONTINUE TO BE INVESTED OVER TIME.

The use and protection of retirement dollars (beyond a target year) is embedded in a fund’s lifecycle. Regardless of whether a target-date fund operates ‘through’ or ‘to’ the target year, your dollars will continue to be invested over time.

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Although the front end of the baby boom generation is well into retirement, we are still 10-15 years away from the final boomers to hit retirement age.  With this in mind, we wanted to take a look at this cohort and highlight the research specifically aimed at women.  You may be surprised by the uphill battles they’ve faced over the last few decades.

Limited Career Choices and Gender Bias in Retirement Policies

Although Baby Boomer women were far more likely to go to college and get a job than the previous generation, the concept of “acceptable” careers for women often pointed them toward work with lower compensation.  As a result of these lower paying careers, women had less money to defer into retirement accounts than their male counterparts—if they chose to defer funds at all.

Also, due to part-time work and lower wages these women are looking at significantly smaller Social Security payments in retirement.  This may leave many women either dependent upon a spouse or relying on Social Security and personal savings.  This, coupled with less time in the workforce due to pregnancy and child rearing, has left many female Baby Boomers at a great disadvantage.

Individual Responsibility and the Psychology of Saving

Another challenge facing female Baby Boomers is the fear of risk and the perception that money is something that should be left to men.  The latter mindset may have led some women to leave retirement planning and budgeting up to their spouses.  Couple this with a lack of individual responsibility on the parts of both men and women in this generation, and we are left with a big problem. 

According to several studies conducted in the mid-nineties (O’Neill, 1991; Twentieth Century Services, 1994). Hayes and Parker (1993), Kadlec (1994), and Pope (1994), the Baby Boomer generation was shaped by a more affluent lifestyle than their parents.  They enjoyed a higher median gross income and higher free spending limits.  Additionally, since Boomers are a generation detached from the Great Depression’s influence on the importance of saving, many have more reliance on Social Security for retirement and simply have not saved enough.

Risk Averse and Under Educated

Research dating back to 1994 and prior (NCWRR) found that women tend to be conservative, low-risk investors.  At the time of these studies, 72% of the women who saved chose investments that provided only marginal returns.   In order to keep up, women now need to be willing to take more risk in their investments.  This is counter intuitive to how many women of this generation were raised and educated.  To compound this difficulty, many financial advisors and brokers assume women want less risk and therefore fail to do the planning and education needed to help their clients see the risk-reward return and to understand a pace of investing that keeps up with inflation. 

How We Can Help

In our work over the years with married, divorced or never married women, the answer always seems to be the same: Advisors need to understand their client’s biases, feelings, and fears about money and retirement.  We need to make a concerted effort toward financial literacy and, most importantly, to provide a solid, comprehensive financial plan.  Education and planning enable our clients to see the impact of their spending, savings, and the aggressive/conservative balance of their investments. 

At Human Investing we accomplish this through our process called hiPlan.  The hiPlan goal is to give our clients the peace that comes from the stability of a plan that enables them to live out the retirement they have worked hard and dreamed about.

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At Human Investing our advisors talk a lot about retirement, but more and more so, health care is becoming a larger component of how we need to plan. Below are 3 ways you can prepare for the medical needs that come with retirement years as well as an illustration from my life of what happens when you take your health for granted. This past weekend I competed with a team of coworkers and friends in the Wild Canyon Games, a weekend long multi event adventure race that takes pride in pushing its competitors to “find their limits.”

My most anticipated event was geocaching. My teammate/coworker Andrew Nelson and I spent 4 hours running 17 miles in the rugged terrain near Antelope, OR hunting for and finding hidden objects (caches) by means of GPS. Leading up to this event we knew preparation was key so we diligently used google maps and GPS software to plot our course to find the most valuable caches. We printed off maps and purchased the necessary gear to compete in this event.

• GPS

• The Right Equipment

• A Winning Strategy

• Slight Insanity

• A Below Average Sense of Direction

We were as prepared as a team could be, or so I thought… Now fast-forward to the event. It was mile 13 of 17 total miles and the end was in sight. Andrew and I were running to the finish line, and this is when things started going south for me. My vision blurred, my hamstrings balled up, my mental determination faded and each step was more difficult than the previous one. I didn’t “find my limit,” my limit found me and hit me square in the jaw. I wanted to crawl into a hole and hide. My body was shutting down. In all my preparation, I didn’t take into account my physical health. I didn’t train enough, eat enough or drink enough I didn’t prepare accordingly.

When running the race of life, many make a similar mistake. We become so busy thinking about everything else that we forget to take care of ourselves. Our busyness may hinder our health, especially as we look to the future and see the reality of our situation. The reality: health care in the United States is becoming more expensive: • Premiums, deductibles and other out-of-pocket expenses could cost a 65-year-old couple retiring today a jaw-dropping $220,000 – and that’s in addition to Medicare premiums.” (AARP.org)

• “The cost of health care is rising faster than inflation” (Forbes)

• According to the World Bank the average life expectancy in the US is 79 years, meaning retirement is lasting longer than ever before.

As we look down the trail towards retirement we can expect the same trend of rising health care needs and health care costs. The more you know and plan for you and your family’s health care, the better off you will be in the long run. Here are 3 thoughts to help you make sure your golden years of retirement stay golden:

1. Take advantage of your HSA: Many companies today are going the way of a High Deductible Health Plan (HDHP), frequently paired up with a Health Savings Account (HSA). An HSA has a triple tax advantage when used to save for inevitable health care costs:

1) Contributions (money put into the account) are pretax. 2) Through interest, dividends or capital gains your account can grow tax free. 3) Any withdrawals for qualified medical expenses are tax free.

Some HSA’s also have an option to invest these dollars with the goal of growth for a later date, similar to a retirement plan. If you have access to an HSA don’t miss out on this great opportunity to save for future health care expenses.

2. Save accordingly: Control what you can control. • Start saving, keep saving and stick to your goals. • Take advantage of your company’s 401(k)! Sign up and contribute as much as you can. • Ask questions: call the 401(k) Advisors at Human Investing with questions regarding saving for retirement - 503.905.3100

3. Invest in yourself: Whether you plan to travel the world, spend time with family, or give back to the community you will need good health to achieve your goals and dreams. You can begin making healthy choices today by sticking to those New Year’s Resolutions, eating right and exercising. Invest in yourself - keep your mind and body active and healthy for years to come.

Just like geocaching, it’s necessary to make adequate preparation for your future, but unless you invest in yourself well it becomes difficult to finish strong in the race of life.

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