Jerome Clark, portfolio manager of the T. Rowe Price Retirement Funds and co-portfolio manager of the T. Rowe Price Target Retirement Funds .

T. Rowe Price’s target date strategies offer two approaches to funding retirement.

Most people have decades to prepare for retirement, but despite that fact—or perhaps because of it—an uncomfortable truth remains: Many individuals are unprepared for retirement, says Jerome Clark, portfolio manager of the T. Rowe Price Retirement Funds and co-portfolio manager of the T. Rowe Price Target Retirement Funds.

Individuals face multiple risks—including longer life spans, inflation, and market risk—as they search for effective investment strategies to maintain a comfortable standard of living in retirement. At the same time, people’s needs and desires come in different shapes and sizes, says Clark. An effective solution must be flexible enough to account for individual preferences.

Two Approaches to Asset Allocation

Investing Innovation

Target date funds are generally designed to automatically adjust their investment mix, reducing exposure to stocks and increasing exposure to bonds as the target retirement date approaches. A subset of these funds, such as those offered by T. Rowe Price, will continue to adjust the investment mix after the target date and into retirement. T. Rowe Price has developed two suites of target date funds designed to meet retirement investors’ differing needs.

T. Rowe Price Retirement Funds seek asset growth and accumulation prior to retirement while maintaining an asset base sufficient to sustain income withdrawals during a retirement potentially lasting 30 years or more. To address inflation and longevity risks, this strategy uses a higher allocation to stocks than the industry average, typically ranging from a 90% allocation 30 years from retirement to about a 55% allocation at the expected retirement date. In exchange for higher portfolio volatility resulting from greater equity exposure, investors in the Retirement Funds get relatively more exposure to the higher growth potential equities provide for a longer period of time.

While the T. Rowe Price Target Retirement Funds also promote asset accumulation prior to retirement, they are designed to reduce volatility as you near retirement and support income withdrawals over a shorter postretirement time horizon. The strategy maintains a lower equity exposure—42.5% at the expected retirement date—in favor of fixed income investments in order to reduce the risk of principal loss around and after the target retirement date. This approach is designed for investors willing to accept more modest growth potential in exchange for less volatility around their retirement date, says Clark. Both approaches offer important benefits. Expert allocation across a broad range of underlying stock and bond mutual funds aims to provide an age-appropriate balance of growth potential and stability. The underlying funds are managed by experienced portfolio managers, who are supported by T. Rowe Price’s independent global research platform. In addition, the Asset Allocation Committee—composed of some of the firm’s most senior investment professionals—periodically makes modest tactical adjustments to each suite’s asset allocation to reflect prevailing economic and market conditions. The investment mix of each fund is rebalanced regularly to help keep its long-term investment objectives on course with its respective design.

An Experienced Partner

Our approach to target date investment strategies reflects the culture of T. Rowe Price—a commitment to research and collaboration among seasoned professionals in pursuit of investment management excellence for our clients, says Clark. The firm has been managing asset allocation portfolios since the early 1990s, when it first created targeted risk products. It introduced the Retirement Funds a decade later and added the Target Retirement Funds in 2013.

But the work hasn’t stopped. As hard as we’ve worked to research, create, and manage our target date retirement strategies, the landscape is constantly shifting, and we have to be nimble enough to keep up, says Clark. As new retirement challenges emerge for our clients, we will continue to look for solutions that meet their needs before, during, and after retirement.

The principal value of the Retirement Funds and Target Retirement Funds (collectively, the target date funds) is not guaranteed at any time, including at or after the target date, which is the approximate year an investor plans to retire (assumed to be age 65) and likely stop making new investments in the fund. If an investor plans to retire significantly earlier or later than age 65, the funds may not be an appropriate investment even if the investor is retiring on or near the target date. The target date funds’ allocations among a broad range of underlying T. Rowe Price stock and bond funds will change over time. The Retirement Funds emphasize potential capital appreciation during the early phases of retirement asset accumulation, balance the need for appreciation with the need for income as retirement approaches, and focus on supporting an income stream over a long-term postretirement withdrawal horizon. The Target Retirement Funds emphasize asset accumulation prior to retirement, balance the need for reduced market risk and income as retirement approaches, and focus on supporting an income stream over a moderate postretirement withdrawal horizon. The target date funds are not designed for a lump-sum redemption at the target date and do not guarantee a particular level of income. The key difference between the Retirement Funds and the Target Retirement Funds is the overall allocation to equity; although they each maintain significant allocations to equities both prior to and after the target date, the Retirement Funds maintain a higher equity allocation, which can result in greater volatility over shorter time horizons.

T. Rowe Price Investment Services, Inc. Distributor.