Planning for Income

The retirement plan industry has had a continued focus on how one’s savings can effectively provide an income stream during retirement. However, to date, there has not been a broad embrace of retirement income products, nor participant education focused on effectively translating savings into income. To help address this conundrum, Dimensional Fund Advisors recently launched a suite of target-date funds designed to address the challenge of retirement income uncertainty through a more comprehensive risk management framework. Eduardo Repetto, Co-CEO and Co-CIO of Dimensional Fund Advisors and Mark Agustin, COO at Aspire Financial Services spoke with PLANADVISER about the new product offering and their collaboration in delivering this distinct solution to 401(k) plans.

PA: What’s the objective of the new target-date fund [TDF] suite?

Repetto: Target-date funds provide an evolving asset allocation that follows the evolution of one’s life cycle, from the time we join the workforce all the way throughout retirement. When young, our future retirement is essentially “funded” by future savings (from our human capital pool). Retirement, at this point, is far away and expectations of a retirement standard of living are driven substantially by our career paths. As retirement nears, the more relevant our savings become in defining our retirement. In the later stages, and in retirement, losses in the consumption level the portfolio can afford become more serious, and in some cases too difficult to recover from. Having a thoughtful asset allocation with the right risk management throughout one’s career is therefore crucial.

Any well-developed asset allocation framework needs to balance growth and risk management assets. Managing the right risk in a robust way is extremely important in order to help avoid unpleasant surprises. In the case of saving for retirement, we believe a principal risk is retirement income uncertainty. Our asset allocation evolves first from a focus on asset growth, with the expectation of efficiently harvesting the time value of money, to an increasing allocation to income risk management in order to reduce the possibility of unpleasant surprises close to, or in, retirement.

PA: How does it differ from what the rest of the industry offers?

Repetto: The main difference is our focus on not leaving the investment risks threatening participant retirement consumption unmanaged. Most target date funds focus on managing the volatility of current account balances. Managing this volatility is a good goal; however, it is probably not one’s main goal if saving to fund consumption in retirement, which may start several years from now and can last 20 years or more. The uncertainty about how much consumption the portfolio can afford, inflation adjusted, is the main risk that needs to be managed.

PA: What led to the Dimensional/Aspire relationship?

Agustin: We’ve had a long history with Dimensional combining technology-enabled services with academically driven investment strategies to deliver cost effective, outcome-based retirement programs to plan sponsors and their respective participants. Our companies share a common vision and fundamental business objective to enable participants to retire with dignity and sufficient income to support their retirement years. We believe the Dimensional Target Date Retirement Income Fund solution integrates technology with investment management expertise and real-time data to create a dynamic retirement solution that will help participants truly manage and achieve their retirement income objectives. We are honored to be selected to collaborate with Dimensional to launch this product.

Repetto: Both organizations believe in the mantra “better retirement outcomes.” Aspire, an industry leader, integrated the tools necessary to provide more transparency for plan participants and retirees as they seek clarity around retirement income. In order to help participants have a better retirement, we need the right investment solution and a great communication platform so participants, sponsors, and advisors can make informed decisions. I think that working with Aspire we’ve achieved both goals. 

Agustin: We collectively knew from the outset that integrating Dimensional’s assessment tool with our InvestLink platform is what makes this product quite unique and key to driving participant utilization. We applaud Dimensional’s foresight and commitment improving participant outcomes.

To learn more about how to access Dimensional’s Target Date Retirement Income Funds, visit: www.aspireonline.com/dimensional-TDIF.

Aspire Financial Services is a leading national service provider of end-to-end smart retirement solutions with a single platform for all DC plan types. Dimensional Fund Advisors LP is an investment advisor registered with the Securities and Exchange Commission. It does not provide investment advice to plan participants. Target Date Retirement Income Funds and other Dimensional Funds are offered by Aspire Financial Services. Dimensional may, from time to time, sponsor and/or attend events where Aspire is reimbursed for expenses related to these events. Information on Dimensional and their Target Date Retirement Income Funds are obtained from public sources and deemed reliable at time of distribution. Investments in target date funds are subject to the risks of their underlying funds, and asset allocations are subject to change over time in accordance with each fund’s prospectus. An investment in or retirement income from a target date portfolio is not guaranteed at any time, including on or after the target date. An investment in a target date portfolio does not eliminate the need for investors to decide— before investing and periodically thereafter—whether the portfolio fits their financial situation. Target Date Funds are designed to target a year in which an investor may withdraw funds for retirement or other purposes. For more information, please refer to the prospectus.

There is no guarantee this investment strategy will be successful and it is possible to lose money with this investment. Diversification does not protect against loss in declining markets. Investments in stocks and bonds are subject to risk of economic, political, and issuer-specific events that cause the value of these securities to fluctuate. Small cap securities are subject to greater volatility than those in other asset categories. International investing involves special risks such as currency fluctuation and political instability. Sector specific investments can also increase investment risks. Fixed income securities are subject to increased loss of principal during periods of rising interest rates and may be subject to various other risks, including changes in credit quality, liquidity, prepayments, and other factors. Inflation-protected securities may react differently from other debt securities to changes in interest rates.

These funds are available on the Aspire platform. To obtain the Morningstar information on a particular fund click on the ticker symbol of the fund. To obtain the Security Exchange Commission (SEC) filings (prospectus and annual report) scroll to the bottom of the Morningstar page-Filings section.