Some target date funds are poorly designed, JPMorgan reports in a new white paper.

First, rather than concentrate on providing income to participants over the course of their retirement years, which may vary widely, JPMorgan recommends concentrating on replacing a percentage of their income at the time of their retirement, since that is a date certain, whereas no one knows how long they will live.

As a standard, JPMorgan suggests that participants aim to purchase an annuity at the time of their retirement that will replace 40% of their income.

In addition, JPMorgan found, participants contribute less than expected to their accounts and borrow and withdraw more than earlier research has shown. Looking at the 1.3 million participants in its own plan, JPMorgan discovered that one in five participants borrow from their 401(k) plan and that the average loan is 15% of the balance. And at age 59-1/2, they begin withdrawing as much as 20% to 25% of their assets every year.

Because of this, JPMorgan believes that target date funds should incorporate other asset classes to generate more predictable investment results.

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