Conventional wisdom suggests that target-date funds (TDFs) provide a straightforward path to retirement savings, automatically adjusting asset allocation as investors age. However, a 2025 survey by Allspring Global Investments uncovered a contrasting preference among high-net-worth individuals approaching retirement. A remarkable 84% of these affluent investors, with household investable assets exceeding $200,000, are opting for strategies other than TDFs. This divergence indicates a sophisticated approach to retirement planning that emphasizes tax management, strategic withdrawals, and a more diverse investment landscape, moving beyond the 'one-size-fits-all' nature of TDFs, particularly as retirement nears.
The appeal of target-date funds, which automatically transition from higher-risk to lower-risk assets, tends to diminish for wealthier investors as they approach retirement. Nate Miles, head of retirement at Allspring, highlights that these individuals differ significantly from the average investor for whom TDFs are typically designed. A key area of concern is tax management. Many high-income earners, accustomed to automatic tax deductions from their salaries throughout their careers, may find themselves unprepared for the complexities of managing tax burdens during retirement withdrawals. Miles notes that less than half of retirees prioritize tax-efficient withdrawal strategies, even though such planning can substantially influence long-term financial outcomes.
As retirement approaches, the unique financial circumstances of each investor become increasingly important. Wealthier individuals face a myriad of decisions that extend beyond simple asset allocation, such as determining optimal withdrawal sequences across various account types—taxable, tax-deferred, and tax-exempt—to minimize their tax liability. They must also consider how to sustain their desired monthly or annual income, factoring in their lifespan and anticipated investment returns. Miles acknowledges that these decisions present a considerable challenge, especially given the personalized nature of each investor's financial situation, necessitating a more tailored retirement strategy.
To emulate the successful strategies of affluent investors, those nearing or already in retirement should prioritize strategic withdrawals, tapping into taxable accounts first to allow tax-deferred and tax-free assets to continue growing. Exploring Roth conversions, which involve moving funds from a traditional IRA to a Roth IRA, can offer long-term tax advantages. Furthermore, a carefully planned drawdown order is crucial, as an improper sequence can lead to significant, unnecessary tax payments. For younger investors, diversifying beyond a single 401(k) by utilizing options like Roth IRAs, HSAs, and brokerage accounts, and incorporating a broader range of assets such as index funds, ETFs, REITs, and actively managed funds, can foster both growth and tax efficiency, building a robust financial future.
The prevailing trend among wealthier investors to move away from target-date funds underscores a broader shift towards personalized and tax-optimized retirement planning. This approach emphasizes active management of one's investment portfolio and withdrawal strategy, recognizing that a generic solution may not adequately address the complexities of individual financial landscapes, especially during the crucial pre- and post-retirement phases.
