For its Target-Date Industry Survey, Morningstar looked at Fidelity Freedom 2000 – which has existed for more than a decade since its investors’ retirement date. Combining all three Fidelity Freedom 2000 funds (Freedom, Freedom Index, and Freedom K, though only the first has existed since 2000) reveals that the strategy received steady inflows leading up to 2000. At retirement, some investors withdrew their money, but during the ensuing four years, others continued to add to the strategy. More than 10 years after the retirement date, the strategy’s total net assets have continued to grow without any substantial outflows (over $52 million in inflows in 2010).
The funds among five firms with funds with a 2005 retirement date (AllianceBernstein, Fidelity, GuideStone, T. Rowe Price, and Vanguard) thus far have followed a similar pattern, according to the Morningstar data. The data reveal a trend of heavy inflows leading up to the retirement date, followed by several years of continued inflows at a slower, but still positive rate (over $120 million).
The 2010-dated funds (among 27 asset managers) represented provide the most diverse set of examples, but they’ve only recently passed their retirement date. The current trends, though, echo those seen with the 2000 and 2005 funds. Even funds designed for withdrawals at retirement (as determined by whether the fund’s allocations remained level after the target date) continued to see inflows in 2010 (nearly $224 million for “to” retirement funds, over $134 million for “through” retirement funds).
Morningstar noted that because the data do not account for individual investor behavior, it’s entirely possible that shareholders of a fund with a target-retirement year of 2000, 2005, or 2010 did not actually retire during that year. What’s more, some 401(k) platforms may have only recently started including target-date funds, which could cause inflows to overshadow investors withdrawing from their accounts.
Morningstar said the fund flow data suggests investors may benefit from a longer “through” glide path, but if there are many investors with small balances cashing out at retirement, then a “to” glide path may be a more prudent choice. If a plan or plan sponsor serves a constituency that tends to work longer or well beyond the stated retirement dates, a “through” glide path may be more appropriate.The Morningstar report is here.