Women, Gen-Y leading the way
ENFIELD, Conn., May 15, 2014 /PRNewswire/ — Target Date Funds and other asset allocation strategies are growing in popularity with investors in employer-sponsored defined contribution retirement plans, especially with women and younger workers, according to data tracked by MassMutual’s Retirement Services Division.
First-quarter 2014 data for 401(k) and other defined contribution plans administered by MassMutual show that 26.9 percent of assets were invested in asset allocation accounts, the highest ever tracked by the retirement plan provider. MassMutual serves more than 2.8 million retirement plan participants.
The investments earmarked towards asset allocation accounts have increased by 39 percent since 2009, an indication that Target Date Funds and similar strategies are gaining traction, according to Elaine Sarsynski, Executive Vice President of MassMutual’s Retirement Services Division. Target Date Funds, sometimes known as age-based or lifecycle funds, automatically reallocate their mix of investments as investors get closer to a predetermined retirement date, typically growing ever more conservative.
Simplicity, manageability reflecting changing needs
“MassMutual is seeing greater acceptance of asset allocation strategies for retirement planning, especially by women and younger workers,” said Sarsynski. “We attribute the growth in popularity to more employers offering Target Date Funds to meet a growing demand. American workers are opting for retirement savings strategies that are simpler to understand, easier to manage, and reflect their changing needs as they approach retirement.”
There are differences in the acceptance of asset allocation strategies by gender and generation.
- In the first quarter, 28.4 percent of women’s assets were allocated to asset allocation accounts as opposed to 27.7 percent by men. Those allocations have increased in the past five years by 42 percent for women and 38 percent for men.
- Generation Y or Millennials – those between the ages of 20 and 37 – are gravitating to Target Date Funds and other asset allocation strategies in ever greater numbers, more so than Gen X (ages 36-48), Baby Boomers (ages 49-68) or the Silent Generation (age 69 and older). A total of 52.1 percent of Gen Y retirement assets were in asset allocation accounts in the first quarter, an increase of 3.3 percent from the same time a year ago.
- Target Date Funds are the most popular of asset allocation strategies, especially for women. The growing acceptance indicates that Americans are looking for simpler long-term retirement savings solutions, according to Farnoosh Torabi, a financial planning coach and best-selling author who is a consultant for MassMutual. Deciding upon a retirement savings strategy can be daunting for many people, she said.
“Choosing from a menu of a dozen or sometimes even dozens of different investment options and then figuring out what percentage of your retirement dollars to allocate between them can be mind-numbingly complex,” Torabi said. “Target Date Funds offer an easy solution for many people, providing instant diversification, risk management and asset reallocation as they approach retirement.”
Torabi cautioned investors that not all Target Date Funds are created equal. The glide path – the predetermined allocation of funds between equity and fixed asset classes that changes over time – can differ between Target Date Funds. That means that retirement investors need to evaluate specific Target Date Funds to determine if the Fund’s relative risk profile fits the investor’s individual needs, she said.
MassMutual’s Sarsynski said she expects Target Date Funds and other asset-allocation strategies to become increasingly popular with retirement plan participants.
“While there is no one-size fits-all answer for every retirement investor, Target Date Funds can meet a wide range of investment needs through a single investment solution,” Sarsynski said. “MassMutual’s research shows that retirement plan participants are voting with their feet as more people choose Target Date Funds.”
Founded in 1851, MassMutual is a leading mutual life insurance company that is run for the benefit of its members and participating policyholders. The company has a long history of financial strength and strong performance, and although dividends are not guaranteed, MassMutual has paid dividends to eligible participating policyholders consistently since the 1860s. With whole life insurance as its foundation, MassMutual provides products to help meet the financial needs of clients, such as life insurance, disability income insurance, long term care insurance, retirement/401(k) plan services, and annuities. In addition, the company’s strong and growing network of financial professionals helps clients make good financial decisions for the long term.
For more information, visit www.massmutual.com