The Center for Retirement Research at Boston College looked
at the retirement preparedness of households in various socioeconomic groups
and found that those in the lowest quartile are more likely to be unprepared
for retirement at any given age.
At age 60, 95% of those in the lowest quartile are unprepared, compared to 86%
of those in the highest quartile. At age 62, 79% of those in the lowest quartile
are unprepared, compared to 64% of those in the highest quartile. At age 65, the
comparisons are 61% versus 46%, and at age 70, they are nearly even, at 22%,
versus 21%.
However, all socioeconomic groups in each of the four
quartiles have a retirement gap. For those in the lowest quartile, 54% have a
retirement gap. Forty-eight percent of those in the second quartile have a
retirement gap. Forty-three percent of those in the third quartile have a
retirement gap, and 36% of those in the highest quartile have a retirement gap.
The center says that “health, marital and wealth shocks all
increase the size of the gap. In contrast, an employment shock—that is becoming
unemployed—reduces the gap. Three explanations are possible. One is that
periods of unemployment decrease a household’s pre-retirement income, which
reduces its target retirement rate. The second is that households find a better
fitting job, making it easier for them to work longer. The final is that those
forced to find a new job in their fifties recognize that they will have to work
longer to make ends meet in retirement, so they adjust their plans.”
The problem, the center says, is that while working longer
can help improve people’s retirement security, those in the lowest
socioeconomic status have “seen little improvement in health and life
expectancy and face poor job prospects.”
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Schwab Target Index
Funds are available to retirement plans of all sizes at 8 basis points with no
minimums, and to individual investors at 13 basis points with just a $100
minimum.
Charles Schwab Investment Management announced the launch of
Schwab Target Index Funds, described as a new series of index-based target date
mutual funds constructed with low-cost Schwab ETFs as underlying investments.
Explaining the new product to PLANADVISER, Jake Gilliam, senior
multi-asset class portfolio strategist at Charles Schwab Investment Management,
suggested the new funds are the lowest-cost target date mutual funds available
to employer-sponsored retirement plans, with an across-the-board expense ratio
of just eight basis points (0.08%) and no minimum investment requirements
regardless of plan size.
“Until now, receiving the most competitive pricing on target
date funds could require a $100 million minimum investment or more from
retirement plans,” he adds. “Outside of retirement plans, Schwab Target Index
Funds are also among the lowest-cost target date mutual funds available to
individual investors at 13 basis points (0.13%) with only a $100 minimum
investment.”
According to Schwab, the new series includes funds with
target retirement dates between 2010 and 2060 in five-year increments.
“Today marks an important day of democratization for
employers, retirement plan participants and self-directed individual
investors,” said Marie Chandoha, president and chief executive officer of Charles
Schwab Investment Management. “With Schwab Target Index Funds, every retirement
plan gets the same low price with no investment minimums. That means plan
participants no longer have to pay for a more expensive target date fund just
because they work at a smaller company.”
The underlying assets in Schwab Target Index Funds are
primarily Schwab’s market-cap index ETFs, each of which has the lowest
operating expenses in its respective Lipper category. “It is the result of this
construction that allows CSIM to offer the new funds at such low prices,”
Gilliam said, adding that the asset allocations in Schwab Target Index Funds
are “generally about 5% more invested in equities compared with the market
average at the beginning of the glide path, but moving to become about 5% more
conservative near the retirement date.”
Schwab also offers TDFs as collective trust funds (CTFs),
and makes them available exclusively to 401(k) plans and other qualified
retirement plans through Charles Schwab Bank. Among them are Schwab Indexed
Retirement Trust Funds (SIRT), which offer passive, index-based strategies.
Effective November 1, 2016, plan sponsors also will be able to access the SIRT
funds for eight basis points (0.08%) with no minimum investment required, which
aligns with the pricing of the new mutual fund Schwab Target Index Funds.
NEXT: MetLife Stable Value Solutions Fund Added to Modelxchange
MetLife Stable Value Solutions Fund Added to Modelxchange
MetLife today announced the addition of Wilmington Trust’s
MetLife Stable Value Solutions Fund, “an offering with Wilmington Trust funded
by MetLife group annuity contracts,” to Mid-Atlantic Trust Company’s
ModelxChange platform.
MetLife Stable Value Solutions Fund is described as the
first stable value option available for ModelxChange, which is one of the
original platforms of its kind that allows 401(k) professionals to incorporate
investment models into a retirement plan through a single interface.
“Making available the MetLife Stable Value Solutions through
Mid-Atlantic Trust Company’s ModelxChange innovative platform makes it easy for
professional money managers, investment advisors, and plan record keepers to
select stable value as the capital preservation option for a 401(k) plan and
incorporate the fund into their models,” says Thomas Schuster, vice president
and head of Stable Value and Investment Products with MetLife.
Available only in defined contribution (DC) plans, stable
value products are uniquely structured to maximize returns while preserving
principal, in large part because they are designed specifically for the defined
contribution market.
“Stable value has over a 40-year track record, which has
allowed decision makers to evaluate these funds over various economic
environments,” Schuster says. “Most plan sponsors want to provide a capital
preservation option within their DC plans and stable value funds have routinely
yielded both significantly higher returns and less volatility than its
principal competitor in the capital preservation space, money market funds.”
“By making stable value available through ModelXChange, plan
sponsors will have the opportunity to learn more about these funds,” adds
Warren Howe, national director, Stable Value Markets, MetLife. “This is
especially important since the new rules from the U. S. Securities and Exchange
Commission regulating money market funds are going into effect in October 2016,
making now a great time for plan sponsors to take a closer look at stable
value.”