Target date funds are extremely popular and are the default investment option for nearly 100%* of all State, county, city and local government deferred compensation plans in the United States. Target date funds have proven to be the simplest way for state employees to invest for retirement. Despite their popularity, there is a lot of misunderstanding about how they work. The MO Deferred Comp Plan has created 13 target date funds; each are named for a “target” retirement date and contain a mix of stocks, bonds, and other investments best suited for the average person retiring in that given year. Throughout your career, you can stay invested in that single fund as it automatically rebalances to become more conservative up to – and through – its target retirement date. Here's an example, I’m eligible to retire in 2038, so I choose the 2040 fund – the target date fund closest to my year of retirement. Right now that fund is fairly aggressive and made up of largely stocks. As my career continues and we get closer to 2038, the target date fund’s asset allocation will automatically shift to less stocks and more bonds and diversifying investments as it becomes more conservative. Once I’m in retirement, the target date fund will continue to adjust and focus more on protecting my principal and generating income throughout my retirement. Target date funds are a great investment option to help build retirement savings to supplement the fixed annuity-type income you will receive from your defined benefit pension plan and social security. In addition, they are low-cost and take the guesswork out of selecting individual stocks, bonds and other investments. The only real task you need to focus on is how much you’re saving each paycheck and let the target date fund and investment professionals do the rest. *PLANSPONSOR Defined Contribution Survey, 2021
