Investors short a 401(k) may have a savings solution in the form of a new exchange-traded fund (ETF).
BlackRock has launched a suite of target date ETFs on the New York Stock Exchange.
Target-date funds offer an indexed portfolio that progressively rebalances as retirement nears. Such funds decrease the riskiness of holdings over the decades, typically by adjusting the portfolio’s stock-bond balance. This way, soon-to-retirees can avoid their nightmare scenario: a market collapse that halves their savings on the eve of their retirement.
BlackRock’s offering – the iShares LifePath Target Date ETFs (“ITDA-I”) – invests in a swathe of underlying iShares ETFs. This means taking more risk early on and gradually becoming more conservative as the target retirement date approaches. BlackRock claims the fund “targets the right risk at the right time.”
“ETFs have become more mainstream in recent years, helping meet a variety of investor goals,” VettaFi’s Todd Rosenbluth said of the fund. “However, there has been a limited supply of products designed for retirement specifically. As the ETF industry leader, BlackRock is well-equipped to educate more investors about the benefits.”
The funds available are spread five years apart. The first one to mature is set for 2025 (“iShares LifePath Target Date 2025 ETF” (NYSE Arca: ITDA), and the final one is in 2065, “iShares LifePath Target Date 2065 ETF” (NYSE Arca: ITDI).
Confidence Dwindling
This year could be a decisive moment to arrest some troubling retirement trends in America. According to BlackRock’s latest Read on Retirement survey, retirement confidence is going into free fall.
In 2021, 68% of workplace savers reported feeling on track to retire. Now, in 2023, that number has plummeted to 56% – a double-digit drop in sentiment.
What’s got retirement savers so jittery? In two words, inflation and stocks.
BlackRock found that 93% of savers fear market volatility could ruin their retirement savings, while 86% worry inflation will eat away their nest egg’s value.
Worse yet, when it comes to saving up, many workers go it alone. According to the American Association of Retired Persons, there are almost 60 million workers in the country whose employer does not offer a retirement savings plan.
The survey found that 47% of independent savers are leaning on cash to build their retirement nest eggs, potentially forgoing investment growth that could boost their savings. Meanwhile, a whopping 71% of those self-savers expressed interest in solutions that automate asset allocation based on age, like a target date fund.
BlackRock will be hoping those surveyed put their money where their mouth is and sign up for their new offerings. Before hitting buy, though, interested investors will want to take stock of their retirement readiness and consider their investment time horizon and the costs involved.
The fund has a stratified expense ratio, depending on the target’s maturity year. For target funds 2025 and 2030, the expense ratio is 0.09%. For the 2035 fund, the ratio is 0.10%. For the funds that carry through from 2040 through 2065, the ratio is 0.11%.