As a follow-up to my recent article on Target Date funds, here is an article from last weeks WSJ that asks the important question - if you do have target-date funds, what should you do with them after you retire?
A very important quote from the article: "...Studies have shown that the standard practice of withdrawing 4% a year from retirement accounts succeeds for a long retirement only if the account is at least 75% stocks when withdrawals start, making many target-date funds too conservative." There are probably very few, if any, target-date funds that are invested 75% in stocks upon the target-date.
Additionally, when an investor does choose to make a distribution from the 401k or IRA, the investor must liquidate shares of the entire fund. This is a poor choice, if for example, the market is reaching a peak - then it makes sense to draw from equities - or if the market is in the basement - then it makes sense to draw from fixed income. But this is not possible with target-date funds.
Need I say more?