NEW YORK — Most target-date retirement funds, commonly known as lifecycle funds, do not have enough invested in equities, leaving retirees vulnerable to running out of money, according to a new report.
Thomas J. Fontaine, senior portfolio manager at AllianceBernstein Core/Blend Services, a division of AllianceBernstein Institutional Investment Management, New York, and author of the report, recommended that lifecycle funds have an equity allocation as high as 95% for young savers and 65% at retirement. That compares with most existing lifecycle funds, which have equity allocations no higher than 90% for young savers and as low as 35% at retirement.
"Market risk is the measure most in our industry tend to myopically focus on," Mr. Fontaine said in an interview. "But when you step back and look at the problem" of saving for retirement, "market risk is part of the equation, but savings shortfall, longevity risk at retirement and inflation risk are also factors. You have to think about balancing these risks.
"Cash is a safer asset class in terms of market risk, but equities is a safer asset class in terms of longevity risk," he said, adding that longevity risk — the risk of outliving one's savings — cannot be underestimated.