Target-Date Funds Payout Often Misunderstood: Survey

The disconnect comes with participants’ understanding of what constitutes a prudent range of withdrawal from retirement funds to enable those funds to last through retirement years. Of respondents, 73% could not identify the effective range of drawdown on a $500,000 balance. Rather than the 1-3% or 4-6% ranges most financial experts consider reasonable, respondents instead chose 7-9%, 10%+, or said they didn’t know.

Thomas J. Fontaine, head of AllianceBernstein defined contribution investments, said in a statement concerning the results, “We’re pleased to see such high levels of usage and satisfaction of target-date funds—as well as a broad understanding of their basic features. Clearly the growing popularity of target-date funds, combined with concerted efforts to better educate participants about target-date fund features, objectives and risks, is leading to increased satisfaction and comprehension. However, the belief by half of all participants that using these funds guarantees that they will have sufficient income in retirement indicates we still have more work to do.”

He continued, “This finding is somewhat understandable. Our survey revealed that the top reason participants invest in a target-date fund is that they believe it keeps them invested ‘to and through retirement,’ a strong indication that participants value a strategy that helps put them on a good path to not only building retirement savings, but also carrying them through retirement by providing sustainable income.”