Retirement Planning Landscape

According to Morning Star, rising rates, uncertain markets, lengthening life expectancies, and the elimination of pensions are complicating retirement planning for accumulators and decumulators alike.

At the Morningstar Investment Conference in Chicago, Morningstar director of personal finance Christine Benz led a discussion with three Morningstar experts about research and innovations to address those challenges.

Panelists included David Blanchett, head of retirement research for Morningstar Investment Management; Jeff Holt, director of multi-asset and alternative strategies; and Aron Szapiro, director of policy research.

Here are a few key takeaways. First, “Target-Date Funds Are Kicking It.” Target-date funds are now the default option in many, many retirement plans. And auto-enroll features among plans has only boosted their assets. As a result, target-date funds continue to enjoy significant inflows–to the tune of $70 billion in 2017.

Holt discussed some of the findings of Morningstar’s latest target-date landscape report. Among them: investors in target-date funds continue to enjoy strong investor returns relative to other types of funds. Target-date funds investors usually don’t check their balances daily noted Holt.

“These investors tend to stay the course,” he said. “Target-date funds do a good job of keeping investors in their seats.” And that has allowed target-date fund investors to maximize their returns. Another of the report’s findings: about 95% of the new dollars funneled into target-date funds last year went to series that invest largely in passive strategies.

“Market share between active and passive target-date funds is starting to converge,” said Holt. And costs are on the decline. Target-date fund expenses are going down year after year,” said Holt. “You have to be low cost to compete. We’re seeing historically active managers looking to find ways to lower costs on their target-date funds.” Small Retirement Plans Are Still Lacking. “We need to do more work on the small-plan space,” noted Szapiro.

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