If you have money in a DCP account, a TRS 3 account, or a PERS 3 account, there is a good chance part of it sits inside a “target date fund.” Maybe you picked it on purpose. Maybe it was just the default box that got checked when you signed up and you never touched it again. Either way, a lot of Washington state employees are trusting these funds to carry their whole retirement without really knowing how they work under the hood.
So let’s answer the question a lot of people ask us: are target date funds a good place to keep your money, both while you’re working and after you retire? Or should you be looking somewhere else? We’ll walk through exactly how these funds are built, where they tend to fall short, and what a more personalized approach can look like.
What Is a Target Date Fund, Really?
A target date fund is a single investment option that already has a mix of stocks and bonds inside it. You pick the fund with the year closest to when you plan to retire, like a “2035 fund” or a “2045 fund,” and the fund is supposed to slowly get more conservative as that year gets closer.
A lot of people assume that means someone is actively watching their account and making smart trades on their behalf. That’s not quite right. These funds follow a pre-set formula, called a glide path, that shifts the mix of stocks and bonds automatically based only on the calendar. Nobody is looking at your paycheck, your pension, your health, or your family situation. It’s a general-purpose fund built for an average person, and none of us are actually average.
How the “Glide Path” Actually Works
Picture a plane coming in for a landing. Early in the flight it cruises at a steady altitude. As it gets closer to the runway, it gradually descends. A target date fund is designed the same way, except “altitude” means how much of your money is in stocks (higher growth, higher risk) versus bonds (steadier, lower risk).
When you’re 30 years from retirement, the fund holds mostly stocks, because you have decades to ride out the ups and downs. As you get closer to your target year, it’s supposed to shift more of your money into bonds, so a bad market right before you retire doesn’t wreck your plans. That part makes sense in theory. The trouble is in the details of how fast, and how far, that shift actually happens.
Too Cautious When You’re Young
Here’s the first problem. When you’re in your 20s or 30s, you still have your whole career ahead of you. That’s exactly when your money should be working the hardest, because you have decades to recover from any dips. But a lot of target date funds keep 10% to 15% of a young saver’s money sitting in bonds. Bonds are steady, but they don’t grow much. Money that’s parked in bonds for 30 years is money that missed out on a lot of potential growth.
Because of this, target date funds actually came under public criticism for underperforming other investment options for younger savers. The funds simply weren’t growing people’s money as fast as they could have.
Riskier Than You Think Right Before Retirement
Here’s the second problem, and it’s the one that surprises people the most. After getting criticized for being too cautious with young savers, many target date fund companies responded by raising the risk level across the board, including for people getting close to retirement. So a 60-year-old today may be holding a lot more in stocks than a 60-year-old in that exact same fund would have held ten or fifteen years ago.
As one real example, a “2020” target date fund, meaning it was built for someone retiring right around the year 2020, still held about 60% in stocks (equities) and only 40% in bonds (fixed income) as that retirement year arrived. For some people, that split is fine. But for someone who is about to start pulling paychecks from their retirement account, having 6 out of every 10 dollars exposed to stock market swings can be a lot more risk than they realize, or than they’d choose on their own if someone laid it out for them plainly.
A Worked Example: Two 60-Year-Olds, Two Very Different Outcomes
Let’s make this real with numbers. Imagine two coworkers, both 60 years old, both retiring this year, and both with $300,000 saved. One stayed in the default target date fund. The other worked with an advisor to set a mix that matched their personal comfort with risk and their actual need for stability. Here’s how a rough 15% market drop in their first year of retirement would hit each of them.
| Saver | Stock/Bond Mix | Amount in Stocks | Loss From a 15% Stock Drop |
|---|---|---|---|
| Default target date fund | 60% stocks / 40% bonds | $180,000 | -$27,000 |
| Customized, more conservative mix | 35% stocks / 65% bonds | $105,000 | -$15,750 |
That’s an $11,250 difference in year one alone, just from the stock and bond mix, not from picking better or worse investments. Neither saver did anything wrong. They simply had different amounts of risk sitting in their accounts on the day the market happened to drop. This is exactly why the mix matters so much right before and right after you retire, when there’s no time left to just wait out a bad stretch.
To be fair, the flip side is also true. In a year when the market goes up 15% instead of down, the saver holding more stocks comes out ahead. The point isn’t that stocks are bad. The point is that the “right” amount of stock exposure depends on your own situation, like your pension income, your health, and how much cushion you actually need, not just a birth year formula.
Why “One Size Fits All” Doesn’t Fit Everyone in DCP, TRS 3, or PERS 3
If you’re in TRS 3 or PERS 3, you already have something most people don’t: a pension check coming every month for the rest of your life, on top of your DCP or Plan 3 investment account. That changes the math. A teacher or public employee with a solid pension underneath them can often afford to keep more money in stocks longer, because the pension is already covering their basic needs. Someone without that kind of guaranteed income might need to be more conservative sooner.
A target date fund has no idea any of this is true about you. It doesn’t know you have a pension. It doesn’t know if you plan to retire at 55 or 68. It doesn’t know if you’re expecting an inheritance, still paying off a mortgage, or planning to work part-time in retirement. It just looks at one number, your target year, and applies the same formula to everyone who picked that same fund.
Think of it like buying a shirt in only one size because it’s easier than trying one on. It might work fine for some people. For a lot of others, it’s going to be too loose in one place and too tight in another.
What You Can Do Instead
The alternative isn’t to panic and pull all your money out of the market. It’s to build a mix of investments that actually matches your own timeline, your own risk comfort, and your own retirement income sources, and then check in on it regularly instead of setting it and forgetting it for 20 years.
In practice, that means answering questions like: How much guaranteed income will I have from my pension? Do I plan to retire earlier or later than a typical 65? How would I actually feel watching my account drop 15% the year before I retire? Those answers should drive your stock and bond mix, not just the calendar.
If you’d rather have someone walk through this with you instead of guessing, you can schedule a personal meeting with our team and we’ll look at your actual DCP, TRS 3, or PERS 3 account together.
For an ongoing, lower-cost option, we also built a service called Scenic Plan Confidence specifically for people with money in Plan 3, DCP, and 403(b) accounts. You log in, choose the risk level that actually fits your life, and we tell you exactly where your money should go. Every quarter, we check back in and let you know if anything needs to change. It’s a middle ground between a generic target date fund and paying for full-service, hands-on management.
Frequently Asked Questions
Are target date funds bad investments?
No, they’re not bad, they’re just generic. They’re a reasonable default for someone who doesn’t want to think about their investments at all. The issue is that “reasonable for the average person” often isn’t the same as “right for you,” especially once you’re within about 10 years of retirement.
How do I know how much risk is in my target date fund?
Log into your DCP, TRS 3, or PERS 3 account and look for the fund’s fact sheet, which will list the current percentage in stocks (equities) versus bonds (fixed income). If you’re not sure how to find it, that’s exactly the kind of thing we walk clients through in a personal meeting.
Should I move out of my target date fund completely?
Not necessarily. For some people, a target date fund is genuinely a fine fit. The better first step is understanding what’s actually inside it and comparing that to what you’d choose if you built the mix yourself, rather than assuming it’s automatically wrong or automatically right.
Does having a pension from TRS 3 or PERS 3 change how I should invest my DCP money?
Often, yes. A guaranteed pension check every month can act like the “bond” part of your portfolio already, which sometimes means your investment account can afford to carry more in stocks than a generic target date formula would assume. Every situation is different, which is exactly the point of this article.
What’s the difference between a target date fund and working with an advisor?
A target date fund runs on a fixed formula based only on your target year. An advisor looks at your whole picture, your pension, your other savings, your health, your goals, and adjusts your mix as your life actually changes, not just as the calendar changes. That kind of ongoing attention typically comes with a fee, but it also means someone is watching for the mistakes that cost people the most: missed required withdrawals, the wrong order to pull money from accounts, or an outdated beneficiary form nobody caught in time.
P.S. If you’ve been sitting in the default target date fund inside your DCP, TRS 3, or PERS 3 account without ever checking what’s actually in it, take five minutes this week and look. Then come join our free community below, where we share tools and free courses to help you plan your retirement with real confidence, not guesswork.
