Dimensional Fund Advisors, a leading global investment management firm, today announced the launch of the Dimensional Target Date Retirement Income Funds, a next generation solution developed to help manage uncertainty around consumption in retirement. The series of 13 funds are carefully designed to address market, interest rate, and inflation risks leading up to and throughout retirement.
“Defining and managing the right risks are critical when determining any asset allocation. A good target date solution should balance the tradeoffs between growth investments and an appropriate risk-hedging asset,” said Dimensional Chairman and Co-CEO David Booth. “Our target date strategies are designed to manage relevant risks, in particular, interest rate and inflation risks, so investors are less exposed to the effects of random market forces. This may reduce uncertainty about how much consumption their investments will support in retirement, and enable plan sponsors, consultants, and financial advisors to use meaningful information about expected retirement consumption to help investors plan for a more successful retirement.”
Dimensional Co-CEO and Co-CIO Eduardo Repetto added, “Today, the majority of target date funds have managed what we feel are non-crucial risks. They may sacrifice asset growth goals without reducing uncertainty about expected retirement consumption. We feel this means some investors may be incurring opportunity costs without addressing a benefit relevant to what should be the correct goal for retirement: income.”
The Dimensional Target Date Retirement Income Funds use asset allocation strategies to invest in income- growth investments (global equities and fixed income) as well as income risk management investments. The portfolios aim to address market, interest rate, and inflation risks with a hedging strategy based on established liability-driven investing (LDI) theory and an inflation-protected fixed income portfolio. Allocations between income growth investments and income risk management investments shift over time to become more conservative as individuals near retirement age, as well as through retirement, to manage relevant risks and support retirement consumption.
Plan sponsors may determine that the Dimensional Target Date Retirement Income Funds may be appropriate to add as their retirement plan’s qualified default investment alternative (QDIA) or as an additional investment option. The funds are available to plan sponsors, consultants, and financial advisors. Dimensional is also introducing tools to help plan participants and retirement investors evaluate possible investment outcomes based on information about their current retirement savings and goals.