Are Target Date Funds the best option for you?

Target date funds have become the default investment vehicle for millions of retirement savers. They’re marketed as a one-stop solution: set your retirement year, pick the corresponding fund, and let it glide you to retirement with automatic adjustments in risk exposure. Simple, right?

But beneath the convenience lies a series of structural flaws that make target date funds an ill-fitting choice, particularly for those who are serious about long-term retirement planning. The problem isn’t that they’re inherently bad, but that they often fail to address the full scope and complexity of real retirement needs.

Let’s unpack why target date funds don’t work as well as advertised.

1. The Real Time Horizon Is Beyond the Retirement Date

Most target date funds assume your investment time horizon ends at retirement. But retirement isn’t a finish line, it’s the starting point of a multi-decade phase that could last 30 years or more. If you retire at 60 or 65, your portfolio still needs to grow and generate income to support your lifestyle potentially into your 90s.

Target date funds, however, often shift dramatically into bonds and cash equivalents as you approach the “target” date. That might reduce short-term volatility, but it also sacrifices long-term growth. As a result, many investors risk running out of money simply because their portfolio becomes too conservative just when it needs to stay resilient.

Retired investors don’t just need safety, they need longevity. Your real time horizon isn't 65, it's your life expectancy (and often beyond, considering spouses or legacy goals).

2. They’re Built for the Average – And You're Not Average

Target date funds are mass-market products. They operate on broad assumptions: average life expectancy, average savings rate, average risk tolerance. But none of us is average.

Some people retire earlier. Others work longer. Some have pensions, rental income, or inheritance; others rely solely on investment portfolios. Your goals, whether it’s supporting family, traveling the world, or leaving a legacy, are personal and unique. Yet target date funds apply a cookie-cutter approach.

This one-size-fits-all design ignores individual financial situation, which should account for personal variables like:

• Other income streams (CPP, OAS, pensions, etc.)
• Retirement spending plans (front-loaded, level, or decreasing)
• Tax strategy
• Estate and legacy goals

In contrast, a well-crafted financial projection aligns your investment strategy with your actual life, your lifestyle, goals, and flexibility.

3. Performance and Cost Leave Much to Be Desired

Ironically, for a passive investment product, many target date funds aren’t very cost-efficient. Especially in Canada, it’s common to see management expense ratios (MERs) upwards of 1% for these funds, often for mediocre portfolios made up of underlying mutual funds rather than low-cost ETFs.

This added cost may seem small, but over 30 or 40 years, it can erode tens of thousands of dollars (or more) from your retirement savings. And you're not necessarily getting premium results for that fee.

Studies have consistently shown that target date funds, on average, underperform relative to well-constructed, low-cost, globally diversified portfolios. In part, this underperformance stems from their constrained asset allocations, high fees, and lack of personalization.

A Better Way: Personalized, Adaptive Planning

Instead of anchoring your portfolio to a fund with a preset glidepath, anchor it to your financial situation. Your projections should act as the benchmark, not your age or the calendar year.

That means:

• Crafting an investment strategy that matches your evolving risk tolerance and goals
• Prioritizing tax efficiency, estate planning, and income sustainability
• Monitoring and adjusting your portfolio as life unfolds, not just as the market moves

Target date funds promise simplicity but often deliver oversimplification. They fail to account for the full retirement journey, the uniqueness of your life, and the complexity of building sustainable, tax-efficient income over decades.

While they might be better than doing nothing, they are far from the best you can do.

If you're serious about your financial future, and see ‘Target Date Funds,’ or ‘Retirement Date Funds,’ feel free to reach out to our team for a second opinion. Invest in a strategy that’s built around you.

This information has been prepared by Jai Gandhi who is a  Investment Advisor for iA Private Wealth Inc. and does not necessarily reflect the opinion of iA Private Wealth. The information contained in this post  comes from sources we believe reliable, but we cannot guarantee its accuracy or reliability. The opinions expressed are based on an analysis and interpretation dating from the date of publication and are subject to change without notice. Furthermore, they do not constitute an offer or solicitation to buy or sell any of the securities mentioned. The information contained herein may not apply to all types of investors.

iA Private Wealth Inc. is a member of the Canadian Investor Protection Fund and the Canadian Investment Regulatory Organization. iA Private Wealth is a trademark and a business name under which iA Private Wealth Inc. operates.