Use of ‘target-date’ funds grows in 401(k) plans

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There is a bit of good news in the world of retirement investing.

According to a new study, Americans are increasing their use of so-called target-date mutual funds in 401(k) plans, and most people report being satisfied with them.

Among active and knowledgeable investors, use of target funds has nearly doubled to 41% today from 22% in 2005, according to the survey of more than 1,000 people by investment firm AllianceBernstein.

Among neophytes -- what the firm terms ‘accidental’ investors, who handle their own 401(k) investing only because they must -- 1 in 4 people use target funds, up from 16%.

Target funds typically buy a variety of underlying mutual funds to create a diversified portfolio based primarily on a person’s age and expected retirement date. Though target funds have shortcomings and risks, they’re generally considered to be a wise choice for unsophisticated 401(k) investors because they handle much of the decision-making, such as which individual funds to buy and how much.

Employees seem to be happy with target funds: 81% of those surveyed said they’re as satisfied or more so with them as with the other funds in their plans. Most people understood that the funds are designed to become more conservative as participants near retirement age, according to AllianceBernstein.

Still, Americans feel disillusioned overall about their retirement prospects.

The percentage of people who feel confident in their ability to achieve a comfortable retirement has risen to 26% from 18% in 2009, according to the survey. but that’s down from 41% in 2007, prior to the global financial crisis. And even then, only 2 in 5 people feeling upbeat about their retirement prospects was nothing to crow about.

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-- Walter Hamilton