The Fatal Flaw in Your Retirement Plan’s Target Date Funds
The life-cycle portfolios that have become so common in 401(k)s will leave retirees unprotected from inflation and short on income in the long run.
There was a major development in 2006 that transformed how Americans invest for retirement. It solved one problem, but created another that will be causing extra pain to people who retire in this economy.
The mid-2000s was the start of the nudge revolution, where policy makers thought they could coax people into more desirable behavior. The idea seemed especially promising when it came to saving for retirement, where research showed that automatically enrolling people in retirement accounts would increase saving and lead to better investment decisions.
Allison Schrager is a senior fellow at the Manhattan Institute and a contributing editor of City Journal.
This piece originally appeared in Bloomberg Opinion