Make it personal: The next chapter for target date solutions
The de facto investment vehicle?
Target date solutions have transformed the U.S. retirement landscape. With advances in technology, they can evolve to address individual needs as investors approach retirement.
Key Insights
Target date solutions have helped to improve the outlook for retirement savers, but there is an opportunity to address dispersions in savings as participants age by introducing personalization.
Personalization is a capability that can be integrated into the target date investment process to help improve outcomes, particularly as participants near retirement.
A consistent investment methodology and access to the same investment building blocks are key as participants transition from a target date investment to a personalized solution.
Benefits of personalization can be incorporated as an extension of the target date experience as participants near retirement.
Target date AND personalization (not OR):
For illustrative purposes only. Not representative of any T. Rowe Price product or actual investment.
Two ways to implement personalized target date solutions:
Dynamic QDIA
In the dynamic QDIA1 version, a possible eligibility criteria might be participants that reach a certain age (e.g., age 50)
- Younger participants are defaulted into an age-appropriate target date portfolio
- Participants who meet the plan's criteria (e.g., age 50+) are (re)defaulted into the personalized/dynamic QDIA
and/or
Opt-in service
In the opt-in version, the sponsor makes the personalized service available in the plan for all participants
- The sponsor may choose to educate likely participants through tailored communications and promotional messages
For illustrative purposes only.
In both versions, personalization factors are sourced from data made available from the plan and from participants who choose to provide additional information.
Things plan sponsors should know
Interest in dynamic or dual solutions is growing:
Data from our recent plan sponsor survey show that 14% of plan sponsors currently offer participants dynamic solutions that transition participants into a personalized strategy near retirement and another 51% are interested.2
Maintaining a consistent investment methodology is key:
The investment philosophy and methodology of the personalized solution should not differ from the plan's target date solution.
Underlying building blocks matter:
To maintain a consistent experience, moving to a personalized solution should not change or limit the participant's investment opportunities.
See the research in full:
1 QDIA=qualified default investment alternative. A dynamic QDIA gives an employer the opportunity to automatically (re)default participants into a personalized portfolio, with age and sometimes balance, triggering the transition as participants approach retirement.
2 T. Rowe Price, 2024 DC Plan Sponsor Considerations and Actions on Retirement Income Study. The survey was fielded November 14, 2023, through December 22,2023. Data reflects responses from 119 plan sponsors.
Important Information
This material is provided for general and educational purposes only and is not intended to provide legal, tax, or investment advice. This material does not provide recommendations concerning investments, investment strategies, or account types; it is not individualized to the needs of any specific investor and is not intended to suggest any particular investment action is appropriate for you.
The views contained herein are those of the authors as of June 2024 and are subject to change without notice; these views may differ from those of other T. Rowe Price associates.
This information is not intended to reflect a current or past recommendation, investment advice of any kind, or a solicitation of an offer to buy or sell any securities or investment services.
The opinions and commentary provided do not take into account the investment objectives or financial situation of any particular investor or class of investor. Please consider your own circumstances before making an investment decision.
Information contained herein is based upon sources we consider to be reliable; we do not, however, guarantee its accuracy.
Target Date Investing Risks: The principal value of target date strategies is not guaranteed at any time, including at or after the target date, which is the approximate date when investors plan to retire (assumed to be age 65). A particular level of income is not guaranteed.
Past performance is not a reliable indicator of future performance. All investments are subject to market risk, including the possible loss of principal. All charts and tables are shown for illustrative purposes only.
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