7 Tips for Picking a Target-Date Fund

Some target-date funds are riskier than others, here’s how to choose the right one.

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[See these Employee Misperceptions About Target-Date Funds.]

Find out what happens after you retire. There are actually two types of target-date funds: funds where the asset allocation remains static once your reach your retirement date, and funds that continue to grow more conservative in retirement. "Find out if your target-date fund manager is really targeting the date in the name or if it is targeting some date way beyond that," says Joseph Nagengast, president of Turnstone Advisory Group in Marina del Rey, Calif. "Participants think that the date in the name has some significance, and for many of the funds, the date has no significance." Nagengast says that about two thirds of target-date funds continue to grow more conservative beyond the date in the name of the fund. "To find out which type of fund you are in, look at the fund that that same company is managing that is maturing today, the 2010 fund, to get an indication of how your account will be managed when it gets that close to its target date," he says. "If they weren't managing risk appropriately, it will show up in the returns of those short-dated funds."

Don't try to recoup losses with investments alone. Over half of retirement savers (62 percent) think they will be able to retire on the target date they choose, according to a recent online survey by Behavioral Research Associates and asset management company Envestnet. But investors won't be able to retire unless they save enough to cover their expenses. "The best way of dealing with the losses that have been suffered by individuals is not necessarily getting more aggressive or conservative with investments," says Ruloff. "Deferring retirement, not withdrawing funds, and continuing to put funds into your portfolio as you move toward retirement will definitely bring your assets back up."