In a far-reaching white paper, BlackRock takes on the question of which is better: “to” or “through” TDFs. With the growing popularity and nearly ubiquitous presence of TDFs in DC plans, the question is critical for advisors and their clients. The resounding conclusions of the authors of the white paper is that “to” funds are better than “through” funds for the simple reason that the riskiest day of anyone’s life is the day that they retire — or, as plan advisor Joe Denoyior says, the beginning of your longest period of unemployment.
Using a combination of academic research and real world data on income and spending, the authors review three basic questions facing investors:
• How much to save
• How to invest
• How much they can spend
Arguing for a flat post-retirement glide path, the authors state: “It is hard to find a rationale for taking more risk on the retirement date than at a later date when account balances are likely to be smaller and the planning horizon is shorter. Similarly, it is difficult to understand on what basis a glide path should continue to reduce risk after human capital has been exhausted.”
