Given all the talk in the industry about sophisticated glide paths and distribution plans, researchers affiliated by Putnam now argue that a retirement income portfolio should contain no more than 25% stocks.
A new paper from the Putnam Institute concludes that while there are target-date funds for those already in retirement that maintain equity exposure above 60%, these allocations only add to the risk that the retiree will run out of money.
The problem they identified was not longevity or inflation -- or even the scant returns that cash vehicles currently provide -- but the simple odds of a bad run in the stock market early on in the distribution phase.
"It makes no sense to continue rolling down equity exposure past anyone's true target date," Putnam says, blasting funds that do so for being "overly risky and misleading."
All of this may well make sense. But if so, the problem is with the concept of a hard "target date" in general.
Many retail investors retire at a certain age -- 65, 67, even 62 -- even though they do not really have enough money yet to fund their needs for the rest of their lives.
They're simply going with tradition to build a date into their lives, and hoping the cash can stretch.
Target date funds have evolved to stretch the cash even after the target comes and goes. That means staying in the market -- in a kind of "accumulation" mode -- for a lot longer, if not forever.
Putnam ran a lot of scenarios, but the best "stretchers" I can see are the ones that push the target date back. If someone needs to squeeze more income out of the same pool of assets, he or she can take more risk and maybe get burned, or simply put off retirement and shift most of the money into cash.