Next, “as you approach retirement, there is a distinct kink in our glide path,” he says. Equity exposure drops to approximately 60 percent when investors reach the beginning of the Retirement Red Zone and continues to decrease to protect against market declines. Asset allocation stabilizes 10 years after the target date with 25 percent in equities, 10 percent in commodities and real estate, and 65 percent in fixed income.
Although Prudential doesn’t start to de-risk sooner than other asset managers’ target-date offerings, says Rosenberg, “We actually de-risk you at a much quicker pace in order to protect you from that bad luck of retiring at the wrong time. The glide-path equity allocations depicted in the investment prospectuses of other asset managers’ target-date series, which Morningstar shows in its “2015 Target-Date Fund Landscape” report, often dial down equity more slowly.
Despite Prudential Investments’ emphasis on de-risking, “we believe it’s still important that you have money invested in equities throughout your retirement and throughout that red zone,” says Rosenberg. To help better protect against inflation, the glide paths it implements for older investors hold more TIPS, commodities, and public and private real estate investments.
“Making sure you have the right target-date fund based upon the demographics and the unique characteristics of your plan is of paramount importance today,” says Rosenberg. “That’s a huge job that advisors can take on with their plan-sponsor clients.” And to help facilitate better outcomes, “what we hope advisors do,” he says, “is think about risk in a different way.”