Target Retirement Annual Review: Fine-Tuning with a Focus on Inflation Protection

Each year, our Defined Contribution Investment Group conducts a comprehensive review of our target retirement strategies, reassessing the capital market expectations and demographic assumptions that underpin the glidepath, while also evaluating new asset classes and investment themes for inclusion in investor portfolios.

The process follows a consistent and transparent three-pronged framework:

  • Desirability: Would enacting this change to the glidepath be expected to improve participant outcomes?
  • Suitability: Is the investment decision under consideration suitable for all DC investors? 
  • Investability: Can we implement this investment theme efficiently?

While in past years we have concentrated on a single asset class, this year we will focus on three areas of adjustment. For a full copy of the report, click here

James C Ryder
Lisa Khatri
Portfolio Manager

The coming year poses a unique set of changes, as we will merge our 2015 Fund with the Target Retirement Income Fund and open the 2065 Fund for the next generation of retirement savers. Concurrent with these changing vintages, we plan to implement enhancements to the glidepath that balance key risks participants face by fine-tuning our inflation protection allocation and improving return expectations for younger participants. 

Figure 1: Evolving a Glidepath that Balances Long-Term Returns and Key Risks

A Commodities replaced by equities early in glidepath to improve expected returns
B 42.5% of total equity exposure in International equities due to higher long-term return expectations
C International equity reduced to 40% to manage volatility (unchanged from current glidepath)
D Broad TIPS removed. Intermediate TIPS established at age 55.
E Commodities established at 60 for inflation sensitivity and diversification
F 5 Years After Retirement (Income Strategy)


1. Focus on Wealth Accumulation and Protection Where and When It’s Needed Most

To do this, we will be replacing commodities exposure with additional international equity exposure (MSCI ACWI ex US IMI Index) early in the glidepath and then will re-establish the commodities exposure starting at age 60. The intended benefits of this approach are to:

  •  Increase global diversification for younger participants (42.5% of total equity) while providing higher expected returns in wealth accumulation years
  • Provide more inflation-sensitive asset class exposure through commodities to participants at age 60 to reduce volatility via increased home bias (international equity will make up 40% of the equity allocation for participants entering retirement, unchanged from the current glidepath weight)

2. Review Portfolio Efficiency, Lower Expected Risk

Here, we look to remove broad-based US TIPS exposure and reallocate to intermediate TIPS, with the intended benefits being to:

  • Provide a comparable long-term return expectation and lower expected risk, with the additional benefit of a higher historical correlation to the Consumer Price Index (CPI), an aggregate measure of consumer goods and services commonly used for identifying periods of inflation or deflation
  • Reduce interest rate risk

    Figure 2: Intermediate TIPS Offer More Efficient Means of Inflation Protection

3. Increase Strategic Diversification in Pursuit of Returns

Finally, we plan to replace the FTSE EPRA NAREIT Developed Liquid Index with the FTSE EPRA NAREIT Developed Index with the intention to gain:

  • Diversification through broader exposure to the REIT universe, including smaller market cap exposures
  • An opportunity for increased returns

    Figure 3: Characteristics of REIT Benchmarks

In Closing

In keeping with the opening (2065 Fund) and closing (2015 Fund) of our target retirement vintages, our strategy is designed to evolve in the service of helping participants achieve retirement readiness. Changes do not need to be drastic to be additive, and by virtue of the broad building blocks at our disposal we are able to tweak the asset class exposures in order to deliver more appropriate risk and return expectations for participants at each stage of the life cycle.


The information provided does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor’s particular investment objectives, strategies, tax status or investment horizon. You should consult your tax and financial advisor.

All information has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. There is no representation or warranty as to the current accuracy, reliability or completeness of, nor liability for, decisions based on such information.

The views expressed are the views of the Defined Contribution team through November 30, 2019, and are subject to change based on market and other conditions. This document contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected.

Investing in commodities entail significant risk and is not appropriate for all investors. Commodities investing entail significant risk as commodity prices can be extremely volatile due to wide range of factors. A few such factors include overall market movements, real or perceived inflationary trends, commodity index volatility, international, economic and political changes, change in interest and currency exchange rates.

Foreign investments involve greater risks than U.S. investments, including political and economic risks and the risk of currency fluctuations.

Bonds generally present less short-term risk and volatility than stocks, but contain interest rate risk (as interest rates raise, bond prices usually fall); issuer default risk; issuer credit risk; liquidity risk; and inflation risk. These effects are usually pronounced for longer-term securities. Any fixed-income security sold or redeemed prior to maturity may be subject to a substantial gain or loss.

Investing involves risk including the risk of loss of principal.

All the index performance results referred to are provided exclusively for comparison purposes only. It should not be assumed that they represent the performance of any particular investment.

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EXP: 11/31/2020