Ask Terry Questions targeted retirement funds

targeted retirement funds

By Terry Savage on March 23, 2014 | Investments


I would like your opinion on targeted retirement funds. I am currently in the T.Rowe Price Roth 2020 Fund and have been for years. Recently, I heard a financial expert state that he doesn’t recommend this type of retirement fund because when the interest rates go up, the bond funds go down and you are losing money. Instead, he recommended an index fund. I have almost $200,000 in this fund and thus want to make sure I am doing the right thing for my retirement. I am 61 years old and don’t plan to touch this fund for at least 6 years or more. What is your opinion? As always, I respect your comments. Thank you!

Terry Says: Well, there’s a big debate about using target retirement funds once you’re IN retirement, or nearing retirement.  And it’s hard to give a blanket answer because a not all of these funds use the same assumptions.  Some become very “conservative” as the target date approaches, holding a greater percentage of bonds.  And it’s certainly true that when interest rates rise, bond prices fall — which could leave you vulnerable to losses in your retirement fund.  Here’s an article from which describes all the issues:

Having said that, T. Rowe Price is one of the large mutual fund companies that has always maintained a significantly higher percentage of assets in stocks, even as the target date approaches.  They recognize that retirement is a long process, and that you need the growth that stocks provide.  I’m glad you’re in a T. Rowe Price target fund, because that entitles you to free retirement income planning services from them.  Call and make an appointment to talk with a certified financial planner at T. Rowe Price.  You’ll need to give them an overall look at your situation, your income, and how your other assets are invested.   Maybe a portion of your target fund should be moved into perhaps the equity-income fund, or you might decide to stay put.  Either way, they are not trying to sell you anything, and they offer an excellent process.



a personal
finance question