Target-date funds may cost investors significant retirement savings because of their automated, one-size-fits-all investment strategies [1, 2].

This issue matters because millions of workers rely on these funds for effortless retirement planning. While the convenience is appealing, a lack of personalization in asset allocation can erode the final balance of a retirement account over several decades.

In a recent interview with the Broadcast Retirement Network, MarketWatch financial journalist Alisa Wolfson said the mechanics of these funds [1, 2]. Target-date funds are designed to automatically shift a portfolio's asset mix from aggressive growth to conservative preservation as the investor approaches a specific retirement year [1, 2, 3].

Wolfson said the "set it and forget it" mentality can be risky. The primary concern is the "glide path," which is the predetermined formula the fund uses to adjust its holdings over time [1, 3]. Because these paths are generic, they do not account for an individual's specific risk tolerance, or external financial circumstances [1, 3].

Beyond the rigid structure of the glide path, fees associated with these funds can further impact returns [1, 3]. When a fund charges a management fee on top of the underlying assets, the compounding effect of those costs can reduce the total amount available to the retiree [1, 3].

Investors often assume that a fund labeled for their retirement year is the optimal choice for their specific needs. However, two people retiring in the same year may have entirely different needs based on their other assets, pension plans, or health status [1, 3]. Relying solely on a target-date fund ignores these variables, potentially leaving the investor with too much risk or too little growth.

“The 'set it and forget it' mentality can be risky.”

The shift toward automated investing simplifies retirement for the average worker but creates a gap in personalized financial planning. As more investors move toward these instruments, the risk increases that portfolios will be misaligned with individual risk profiles, highlighting a growing need for periodic manual reviews of automated accounts.