While more than half of consumers understood that TDFs become more conservative over time and provide a diversified mix of stocks and bonds, one in 10 believed that TDFs included guarantees, become risk-free at retirement or require income to be drawn at the target year—none of which are typical features of TDFs.
The survey found fewer women were likely to say they are familiar with TDFs as men (10% versus 22%). Consumers younger than 50 and those with household incomes of $100,000 or more were the most likely to be familiar with TDFs (20% and 30%, respectively).
Even though IRA owners in general were more likely to claim to be familiar with TDFs than defined contribution (DC) plan participants (42% versus 37%), their actual knowledge is similar to that of DC participants.
LIMRA found that consumers who are invested in TDFs are far more confident than those who do not own TDFs that they will be able to live the retirement life style they want (62% versus 37%). However, this confidence may reflect consumers’ self-identified knowledge level. Three quarters of TDF owners report being somewhat or very knowledgeable about investments or financial products, compared to just 42% of non-owners.
The findings are based on responses from 3,531 consumers who were ages 18 to 84 in May 2012; involved in household financial decisionmaking; and currently working for pay, retired or recently unemployed.LIMRA offers a survey to test knowledge of TDFs at http://www.limra.com/NewsCenter/TDFQuiz/.
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