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Target Date Funds and High Taxes

Ben Steverman

with Ben Steverman, Reporter – Bloomberg News

Target Date funds are catching on with investors; these are funds where an investor provides his retirement date and the fund automatically rebalances his portfolio allocation between stocks and bonds as he nears retirement date – so investors themselves don’t have to worry about portfolio rebalancing over time. Target Date funds are simple and have a low structure but they really only work if all your retirement money is in target-date funds… which is not the case for 62% of all holders – who mix and match them with other investments to “diversify” and lose about 2% in performance compared to those who go all-in with target-date funds. So a mix-and-match approach changes your risk profile in ways that typically do not benefit your portfolio, and this 2% under-performance can significantly impact your portfolio over 20 to 30 years.

Switching gears – the Top 1% of all Americans earn close to $400,000 per year and include well-paid professionals, moderately successful small business owners, doctors, etc. – but still feel financially insecure. Rich Americans think they pay too much in taxes but don’t get enough bang-for-their-buck on taxes paid because of sky-high college expenses, rising healthcare costs and the lack of benefits for higher income Americans. Taxes in other developed economies, notably in Europe, provide a financial safety net and tend to take care of healthcare, education expenses, etc., but Americans – not just the wealthy – have to really depend on their own savings for a decent retirement. So it’s imperative that we channel our savings well and have a strong nest for retirement.

I've been an investment strategist and adviser for over 35 years, leading with a mission of unbiased advice to educate and protect listeners on my weekly radio show on NPR affiliates nationwide. I have been named a “Top 100 Wealth Advisor” by Worth Magazine and “Top Advisor” by Reuters.