When should you dump your target-date funds?

By Jessica Hall

'The autopilot that got you to retirement is a great start. Retirement is when you take the wheel,' says one investment adviser.

More than 70% of 401(k) plan participants are invested in target-date funds, according to 2026 data from the Investment Company Institute.

How long should you set it and forget it when it comes to your retirement plan?

Target-date funds are a mainstay of 401(k) plans and the default investment option for many workers. A target-date fund is a mix of investments that automatically adjusts over time, based on a chosen year like an expected retirement date, becoming more conservative as the account holder gets closer to retirement. Automatic enrollment has helped more workers get into the plans, and subsequent automatic increases in the percentage of earnings they save help keep them on track.

But how long is too long to leave your retirement plan on autopilot in a target-date fund?

Only 17% of retirement savers continue to use target-date funds after they stop working, versus 55% of near-retirees who used them during their careers, according to research from Allspring Global Investments. The study looked at more than 1,500 near-retirees and retirees with at least $200,000 in household investable assets.

The research found that while a target-date fund, or TDF, might be a good way to get started investing, once it's time to retire, decisions about when to claim Social Security, how to prepare for taxes and what to leave behind to heirs or charities become trickier and more personal - and mass-market target-date funds aren't necessarily built to handle these tasks.

"Retirement decisions become far more personal as people approach and enter retirement," said Nate Miles, Allspring's head of retirement. "Target-date funds are just not speaking to the needs of the individual. The idea that everyone is the same becomes less true as we age."

There are currently $10.1 trillion in assets in 401(k) plans, and 71% of plan participants are invested in target-date funds, according to 2026 data from the Investment Company Institute.

"The whole purpose of a TDF is to simplify savings during your working years. Once you're actually in retirement, I don't see a use for them anymore, especially if you're working with an adviser," said Michael Walstedt, a founding adviser with Reliant Wealth Advisory in Hoboken, N.J. "TDFs are more of a blanket approach to saving. In retirement, you want a personalized approach that can tailor your withdrawal strategy to your personal situation. A TDF can't give you that."

One key assumption for target-date funds is that an investor's time horizon ends around age 60, at which point the portfolio shifts to a safer mix of stocks and bonds to preserve assets for retirement. But as Americans are living longer, with retirements that potentially last decades, how much of a role should target-date funds play after a person's working life is over?

"TDFs are neither good nor bad. They simply depend on each person's individual goals and objectives," said Flavio Landivar, a senior financial adviser with Evensky & Katz Wealth Management in Coral Gables, Fla. "One of the biggest misconceptions out there is that investors need to become more conservative as they age, retire or draw on their assets. This is generic advice that doesn't follow each person's own liquidity needs, cash-flow needs, overall financial plan or generational wealth transfer."

The retirement phase of life may be too complicated for a target-date fund, advisers said. Some suggested shifting out of a target-date fund into specialized buckets of investments that separate stocks and bonds to allow for a more nuanced approach to investing and preserving assets, withdrawing money in a tax-efficient way, and leaving funds for the next generation.

"The autopilot that got you to retirement is a great start. Retirement is when you take the wheel," said Eileen Olson, founder of Emerald Wealth in Daufuskie Island, S.C.

"Retirement doesn't just change how you invest. It changes what you need your investments to do," said Tyler McConville, a financial adviser with the Capital Group in Madison, Wis.

While a target-date fund can continue to provide diversification and low-cost professional management of a person's assets, it doesn't address many of the decisions retirees face, such as Social Security claiming strategies, Medicare considerations, taxes and how to generate sustainable income, McConville said.

"That's why I often tell clients that a target-date fund can help get you to retirement, but a retirement income plan helps get you through retirement," McConville said.

Still, Americans' limited financial education could be an argument for target-date funds, which offer some ease of use, make decisions for investors and rebalance their portfolios as they age, other advisers said.

"I don't think target-date funds suddenly become inappropriate once someone retires. They can still be a good option, particularly for someone who wants a diversified portfolio without having to manage it themselves," said W. Michael Lofley, a financial adviser with HBKS Wealth Advisors in Stuart, Fla.

"But retirement is also when investment decisions need to account for more than just your age. How much you need to withdraw, what other income you have, and how much investment risk you can afford to take become increasingly important," Lofley said.

For someone who doesn't have enough assets to work with an adviser, a low-cost target-date fund can still be a reasonable investment solution, Lofley said.

"Just recognize that managing your investments and having a retirement income plan aren't necessarily the same thing," he said.

-Jessica Hall

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