A] Prelude
For more information on pension systems, risk and coverage, feel free to visit our dedicated webpages:
https://expatpensionholland.nl/usa-expat-pensions
https://expatpensionholland.nl/global-pillars-systems
https://expatpensionholland.nl/global-investments-risks-0
https://expatpensionholland.nl/global-social-security-coverage
For even more information feel free to visit the following external sites:
https://money.usnews.com/investing/articles/best-performing-401-k-funds
https://www.blackrock.com/us/individual/education/retirement/what-is-a-401k
B] The Issue
Your target-date fund might have the wrong mix for you, and new alternatives could be risky. As stock and bond markets have whipsawed this year, you may be afraid to look at your 401(k) account balance. But all of the volatility actually makes this an opportune time to look under the hood of your 401(k) if you’re nearing retirement or already there.
C] The Details
The conventional retirement-investing advice is often to “set it and forget it” – but at this stage of life, you can’t afford not to know what you’re invested in, considering that 401(k)s are most Americans’ biggest liquid asset. To help ensure you won’t outlive your money, you’ll want to see whether your holdings accurately reflect your risk tolerance and if you’re properly diversified, and then adjust your holdings if necessary.
That’s because when you’re in your 50s or 60s, if you’re overly exposed to equities or long-term bonds and the stock or bond market sours, it can be hard to bounce back from a significant drop in your portfolio. “If you’re one of the unlucky ones who happens to lose money as you’re about to retire, that can dramatically affect the rest of your life,” said Ron Surz, president of the Target Date Solutions wealth-advisory firm.
A shrunken 401(k) can be a real worry at a time when so many Americans have less saved for retirement than advisers suggest:
- Although 401(k) plans hold a stunning $8.7 trillion, the average 401(k) balance for baby boomers, born between 1946 and 1964, is $239,600, according to Fidelity Investments.
- Generation X investors, who were born between 1965 and 1980, have put away just $187,400, on average. Those numbers are down from $249,300 and $192,300, respectively, in the fourth quarter of 2024, due to the stock- and bond-market drops seen earlier this year.
Yet despite the importance of knowing the investment specifics of your 401(k), 46% of employees don’t know what’s in their plan accounts, a 2023 CNBC Your Money survey found. What’s more and even worse, many boomers and Gen Xers aren’t knowledgeable about investments and investment risk, in general.
D] Investment knowledge
The TIAA Institute’s new Financial Literacy and Retirement Fluency in America survey revealed that only about half of boomers and Gen Xers correctly answered its questions about investing, while only roughly 38% aced questions on financial risk. “Comprehending risk is an area where financial literacy is particularly low,” the report’s authors wrote.
Surz is especially concerned that employees often don’t know what’s in their 401(k) target-date funds, a popular default investing option accounting for $4 trillion in assets. Nearly two-thirds of 401(k) contributions in 2024 went into target-date funds, according to the Vanguard How America Saves 2025 report.
Workers gravitating to these funds don’t need to decide how to divide their investments. Target-date funds handle asset allocation automatically, typically tilting portfolios toward stocks when employees are young, and gradually moving money into bonds as they get older. Target-date funds have years in their names to align with the year the employee expects to retire. So, for example, if you plan to retire in 2030, you might choose to invest in your 401(k)’s 2030 target-date fund.
E] Target-date fund risk
But if your entire 401(k) is in one of your plan’s target-date funds, “you may be taking more risk than you need to be,” Surz said. He cites two reasons. One is that some target-date funds continue to keep a high concentration in stocks for employees in their 50s and 60s, which could be problematic if the market crashes as they’re retiring. The other is that some 401(k) target-date funds keep a sizable portion of bond holdings in long-term bonds, which are the most likely type to lose value when interest rates rise. “These 401(k)s are using long-term bonds as a ‘safe’ asset. In my mind, that’s risky,” Surz said.
People in their 50s or 60s should invest for retirement by keeping just 30% in stocks and the rest in short- to intermediate-term Treasury securities, Surz says – including Treasury inflation-protected securities, or TIPS. He points to the federal Thrift Savings Plan, which is like a 401(k) for federal employees and has 68% of 2025 target-date-fund assets in short-term government securities.
F] Impressive returns over 15 years
Overall, target-date funds have done well for investors, outpacing professional expectations and with lower fees than actively managed funds. Morningstar’s 2025 Retirement Plan Landscape report noted that its models expected target-date funds to gain an annualized 6.3% over the past 15 years. Instead, the 37 funds Morningstar tracked returned an annual average of 7.3%.
Put another way, a 50-year-old worker in 2010 earning $75,000, with a $300,000 nest egg and saving 7% a year in a target-date fund, would have finished 2024 with between $785,000 and $1.2 million in their retirement account. Combined with the expected income from Social Security, Morningstar wrote, that worker “would have savings that would be expected to adequately support them throughout retirement at an income level similar to what they had in their working years.”
Morningstar’s report also noted, however, that target-date funds have become increasingly aggressive – increasing their average allocation to stocks over the past 15 years, and adding to their risk level. Simultaneously, some conservative target-date offerings have liquidated because they may have become less appealing for investors and plan sponsors.
G] Do these investments belong in your 401(k)?
Lately, the drumbeat has grown louder in encouraging 401(k)s to add risky alternatives such as cryptocurrencies, like bitcoin (BTCUSD), and private equity, whose investments aren’t traded publicly.
Read: As private equity enters retirement plans, is it too dangerous for average investors to jump in?
Although the Biden administration told 401(k) sponsors to exercise “extreme care” before allowing employees to invest in crypto, President Trump’s Labor Department has said it is neutral about crypto in retirement plans. A Government Accountability Office study said there were 69 crypto options available to 401(k) participants as of November 2024.
Read: Trump administration rescinds Biden-era caution about crypto in 401(k) plans: What that means for you. Alicia Munnell, founder of Boston College’s Center for Retirement Research, wrote recently for MarketWatch that she thinks bitcoin in a 401(k) is “a terrible idea,” because the investment is speculative and volatile.
Under the first Trump administration, the Labor Department said 401(k)s could offer private equity as part of a diversified portfolio such as a target-date fund. Major plan sponsors such as Empower and BlackRock intend to start doing so later this year or next.
“I’m hopeful the regulatory agencies will step in to make sure people know what they’re getting into if 401(k)s are going to put their toe a little bit more into private equity,” said Lisa Gomez, who oversaw 401(k) plans at the Labor Department under Biden, on the “Friends Talk Money” podcast.
H] Finally: How to assess your 401(k) investments
So, how can you know what your 401(k) is invested in, and what should you do if you don’t like what you see? Start by reviewing your account’s latest quarterly performance statement. For a 401(k) in a target-date fund, you can also look at the asset-allocation information in its online prospectus or fact sheet.
You can then determine whether the investments and portfolio allocation in your account feel too risky or too conservative for your taste and stage of life. If you want to invest your 401(k) in a target-date fund but think yours is too aggressive for your risk tolerance, see if the plan has another one with an earlier date that is more conservative. Then, switch into it.
You can also ask your HR department if your employer’s 401(k) offers what’s known as a personalized, or dynamic, target-date fund. This increasingly popular option, generally for people over 40 or 45, lets employees tweak their fund’s allocations based on their risk tolerance, types of assets in other plans and 401(k) account balance.
In a recent survey, 75% of 401(k) plan sponsors said personalized asset allocations can improve retirement outcomes. So, force yourself to review your 401(k) plan’s investment holdings and asset-allocation breakdowns periodically, and then make any necessary switches to help ensure a financially secure retirement.