Why we don't like target date retirement funds

Target date retirement funds are designed to adjust your holdings as you age. Pick the year you want to retire and invest in that year's fund. Easy, right?


While this may seem easy, you should think of it another way.

Which would be easier:

  • Picking an easy investment, adding several years of working, or
  • Picking the right investment, and retiring sooner than the year you picked

I'm not sure about you, but I'd rather work less. That seems easier to me.

What's wrong with Target Date Funds?

Here's how target date funds work:

  1. You pick the date you want to retire and invest in that fund
  2. Each paycheck, you by into this fund, adding to your holdings (this is good)
  3. Early on, the target fund is mostly stocks (100-70%) with some bond funds (0-30%)
  4. As you get closer to retirement, the fund increases bond investments while reducing stock investments
  5. The higher bond investments are more stable, to protect your investment amount as you near retirement

First off, let me say that if you are scared about investing there is nothing wrong with going this route. It is very safe.

However, this blog is about retiring early. And to retire early we need to be all in on stocks. We accept the risk that comes with this.

So what's the worst that can happen?

If the stock market is up when we decide to pull the trigger and retire (stop working) then all is well. Enjoy it!

If the worst happens and there is a huge drop in the market like a recession or depression, we have two options:

  • Keep working until the market goes up (it always will) then retire a year or two later
  • Retire anyway and live with a little less for a year or two

Frankly, I'd pick retiring with less. My time is more important to me and yours should be, too. We only have a limited amount of it before it's up. So making the most of my time takes precedence.

And none of this even deals with cost. Some Target Date funds have higher costs. It depends on the brokerage. So if you do want the safety of a Target Date fund, please at least pick a low-cost one from a place like Vanguard as opposed to others. If you dont have a choice...do what you can to invest in something else that benefits you.

Chris grew up in the United States but felt the world calling. After working throughout his twenties climbing the executive ladder, he left the corporate world in order to have the free time needed to focus on family more than money. Since then he has never held a regular job and spends his time honing his skills to make money grow on trees.He now travels the world with his wife and two sons.

Read more posts by ChrisW