The good news: Investor understanding of target-date funds is high -- including what the "date" in a target-date fund's name actually means and how the asset-allocation strategy for a target-date fund becomes more conservative over time, according to a survey released today by Global investment management firm AllianceBernstein.
The bad news: Slightly over 50% of that same survey group mistakenly believe that using target-date funds will guarantee that their retirement income needs will be met.
The firm's seventh annual Inside the Minds of Plan Participants survey also found that investors are very satisfied with these funds, with 81% reporting being equally or more satisfied with their target-date fund investment performance in comparison to the other funds offered in their plans.
AllianceBernstein's Web-based survey queried 1,000 full-time employees age 18 or older in February. All participants worked for companies that offered defined contribution retirement plans, such as 401(k)s.
According to this year's survey, worker confidence that they'll enjoy a comfortable retirement continues to gradually rise. An estimated 26% of respondents say they're now confident that they will have a comfortable retirement, versus 18% in 2009. These levels nonetheless trail the enthusiasm recorded in 2007, when 41% of respondents indicated that they felt confident they would have a comfortable retirement.
The survey also examines workers' attitudes about retirement plan investing; the appeal and understanding of target-date funds; and the interest in added features such as a built-in, guaranteed income stream.
"We're pleased to see such high levels of usage and satisfaction of target-date funds-as well as a broad understanding of their basic features," said Thomas J. Fontaine, Head of AllianceBernstein Defined Contribution Investments. ''However, the belief by half of all participants that using these funds guarantees that they will have sufficient income in retirement indicates we still have more work to do."
Key findings from the survey include:
There are two distinct groups of workers with very different attitudes and actions toward investing. The continued consistency of these two groups provides useful insight into understanding the behavior of plan participants.
An estimated 43% of respondents described themselves in 2011 as "active" investors: They enjoy making retirement savings and investment decisions and are confident about their retirement prospects. The 57% who described themselves as "accidental" investors don't enjoy investing, don't pay much attention to it and are not confident in their ability to make investment decisions.
Investors overall indicated a clear satisfaction with general understanding of target-date funds across groups -- with some emerging misperceptions. Between 2005 and 2011, use of target-date funds by active investors almost doubled, increasing from 22% to 41%. Accidental investors also increased their usage of target-date funds, but by a lower percentage, from 16% to 25%. On the other hand, the percentage of accidental investors allocating 40% or more of their overall portfolios to target-date funds between 2007 and today grew faster than for active investors, increasing 26% for accidentals investors versus 9% for active investors.