Target date fund investors more confident of reaching retirement goals, according to survey

Individuals investing in a target date fund (TDF) within their workplace defined contribution (DC) retirement plan feel more confident about investing and meeting their retirement goals than those that don’t use target date funds, according to survey results from Voya Financial’s Investment Management business. The survey, “Participant Preferences in Target Date Funds: An Update,” was conducted by ING U.S. Investment Management, which plans to rebrand as Voya Investment Management in May 2014.

More than half (56%) of target date fund (TDF) investors surveyed felt confident they would meet their retirement goals. In comparison, just over four-in-ten (41%) of non-TDF investors felt confident about their retirement savings. Moreover, nearly two-thirds (64%) of the TDF investors felt they could turn their plan savings into an income stream at retirement, compared with just 43% of non-TDF investors. These findings compare similarly to results of a similar study conducted in 2011.

Overall, more than two-thirds (68%) of plan participants using TDFs reported that the investments alleviated the stress of retirement planning, increased their confidence that they were making good investment decisions, and helped them feel more assured they could meet their retirement income goals.

TDF investors contribute more

The survey also found that TDF investors contribute more to their retirement plans. More than four in ten (42%) of TDF investors contribute more than 11% of their income to their workplace plan. In comparison, just 23% of those who do not invest in TDFs were contributing more than 11% of their income.

“These findings about how target date funds are influencing plan participants’ feelings and savings habits provide some powerful insights that both consultants and plan sponsors can act upon,” said Bas NieuweWeme, managing director and head of institutional distribution. “Considering the significant increase in the equity markets in 2013, it is noteworthy that the confidence of those that don’t invest in target date funds is no stronger than it was in 2011. On the contrary, those that invest in target date funds continue to be more confident than non-target date fund investors,” NieuweWeme said.

Investors seek protection and diversification

In addition, the survey found that the vast majority of both TDF investors and non-TDF investors have a strong preference for protection against loss in the years leading up to retirement (92%) and broad diversification among both investments (92%) and investment providers (85%).

“Participants clearly want their investment providers to exhibit great care in the all-important years leading up to retirement,” said Paul Zemsky, chief investment officer of multi-asset strategies and solutions. “This knowledge can help consultants and plan sponsors factor in the investment preferences of their participants when customizing glide paths for their plan demographics.”

Source: ING press release, April 15, 2014.

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