“I’m about two years out from when I had hoped to retire completely.” (Photo subject is a model.) - Getty Images/iStockphoto
Dear Quentin,
The bulk of my money, around $300,000, is in a Fidelity account invested in a target-date retirement fund pegged to 2025. I’m about two years out from when I had hoped to retire completely. I have two other smaller investments, and I will also receive a small pension.
I had thought about moving the Fidelity funds into a cash-type fund, but that ship has sailed. I decided to follow the usual advice to hold steady. I’m literally afraid to look at my balance, so I have no idea at this point how much I have lost.
Target-date funds streamline retirement planning by adjusting the mix of stocks and bonds as you get closer to retirement. - MarketWatch illustration
Dear Soon-to-be,
Your target-date fund should be automatically protecting you without you having to break a sweat.
Target-date funds streamline retirement planning by adjusting the mix of stocks and bonds to become more conservative as they get closer to the target retirement date. The exact breakdown depends on the institution, but a 2025 target-date fund would have approximately 30% invested in U.S. stocks, 20% in non-U.S. stocks, 49% in bonds and, perhaps, 1% in short-term debt.
“Generally, the longer the time horizon to retirement, the greater the allocation to equities (stocks),” Fidelity says. “Funds with a target date further on the horizon — such as a 2060 fund — are focused on growth and invest in higher amounts of equity investments because of the potential for higher investment returns with greater volatility.”
The opposite is also true. “On the other hand, funds with a shorter time frame to retirement are more conservative, with the goal of helping to preserve income as an investor approaches and moves into retirement,” Fidelity says. “To find the target date fund that may be right for you, determine the year in which you expect to retire.” (You can read more about target-date funds here.)
By choosing a target-date fund, you are eliminating some of the stress that comes with a more actively managed portfolio that may, from time to time, require tense conversations with your financial adviser (as happened to this reader who had a disagreement with their adviser when they “begged” the adviser to sell all of their stocks prior to the recent tariff-related tumble).
Not all such funds are created equally. “While target-date funds aim to reduce risk over time, they — like any investment — are not risk free, even when the target date has [been] reached,” according to the Financial Industry Regulatory Authority, known as Finra. “Target-date funds do not provide guaranteed income in retirement and can lose money if the stocks and bonds owned by the fund drop in value.”
Target-date funds typically invest in other funds, rather than individual securities. “And even though funds with identical target dates may look the same, they may have very different investment strategies and asset allocations that can affect how risky they are,” Finra notes. Opinions vary on how much should be allocated to international stocks, with cautious advisers citing currency fluctuations and geo-political turmoil among the risks. Vanguard recommends that at least 20% of a person’s portfolio should be invested in non-U.S. stocks and bonds.
And you will have Social Security coming your way in the years ahead. Most people take it when they are eligible for their full benefits at 66 — 28% of men and 26% of women, according to the Social Security Administration. Only 8.4% of men and 9.3% of women started taking their benefits between 70 and 74. The SSA encourages people to delay taking Social Security by offering a bump in payments if they wait.
You get 100% of your Social Security benefit at full retirement age, which is 67 for anyone born in 1960 or after, and you receive a lesser amount if you claim at any time from the age of 62 until full retirement age. If you wait until age 70, you receive approximately 8% more per year. Some advisers say it can work out roughly the same whether you start taking your benefits at 62 or at 70 — it all depends on how long you live; hopefully, like your parents, into your 90s.
A more nuanced economic outlook
As to your fears about the economy crashing — presumably due to President Donald Trump’s trade war, which has adversely impacted the S&P 500 SPX, Nasdaq COMP and Dow Jones Industrial Average DJIA in recent weeks — it’s important to express your concerns and discuss them with your adviser, while acknowledging that this is a worst-case scenario that leaves little room for nuance.
Keeping in mind that a day is a long time in politics, most economists at major financial institutions have over the last month raised their expectations for a recession. Earlier this month, J.P. Morgan Research JPM put the probability of a recession happening in 2025 at 60% — up from a previous expectation of 40%.
“The latest unwinding of [April 2] ‘liberation day’ tariffs reduces the shock to the global trading order, but the remaining universal 10% tariff is still a material threat to growth and the 145% tariff on China keeps the probability of a recession at 60%,” the firm says, referring to Trump’s 90-day pause, announced April 9, on his sweeping tariffs. J.P. Morgan Research expects the Federal Reserve to start easing interest rates in September on the way to reaching 3% by June 2026.
As to your timeline for recovery: The S&P 500 dropped by 18% in 2022, increased by 26% in 2023 and rose by another 25% in 2024, and historical data suggests that it can take between one month and one year to recover from a market correction (a 10% fall from a recent peak). The Cboe Volatility Index VIX, regarded as a key indicator of the market’s volatility, is currently at 26.5, down from 52 earlier this month.
As for your two-year window to retirement: The last 15 recessions produced negative returns for 17 months on average, according to Russell Investments, with an annualized cumulative market decline of 14.8%. The Great Depression, from August 1929 to March 1933, had a total U.S. stock pullback of around 74%, it says. Recessions, like rainstorms, come in different shapes and sizes.
Bruce Kasman, chief global economist at J.P. Morgan, has described Trump’s tariffs as “draconian,” but they are also constantly shifting, and it’s too soon to say where the chips will finally land. The president’s supporters, while cognizant of the impact the trade war has had on the stock market, emphasize that they are part of a negotiation tactic.
Kasman believes even scaled-back tariffs have the potential to push the U.S. into recession, as they will increase the cost of imported goods and dampen consumer demand. “What remains is still enough to push the U.S. and China — and thus likely the global economy — into a recession this year,” he said earlier this month.
Where does that leave the $300,000 you have invested in a 2025 target-date fund? Even taking the more conservative portfolio balance into account, investors — just like the funds they invest in — should remain flexible. If your adviser tells you that you would be better off waiting a year or two to retire, or suggests taking on part-time work after your preferred retirement date, keep an open mind.
We live in a world of uncertainty. It’s always better to be prepared for it.
