Have you logged on to your Lockheed Martin 401k website to set up your investment options? If not, you’re most likely invested in the “Qualified Default Investment Alternative” for the plan. Basically, that means if you haven’t picked how you want your money invested, Voya will invest your funds for you in the default investment option.

For the Lockheed Martin 401k, that default investment is a target-date fund (TDF). A TDF is an investment option that uses your age to select an investment mix or allocation (percentage of stocks vs. percentage of bonds) that might be best suited for you.

Basically, if an employee is invested in a Target Date Fund, a younger participant that has a lot longer until retirement might be invested more heavily in stocks compared to someone who is closer to retirement.

For example, if you were born in 1979, and you haven’t selected any investment option, your funds would be put into the Target Date Fund 2045 (The number corresponds to the projected retirement date of the employee). There is a fund manager that watches the investment mix of the TDF to reallocate the funds as he/she sees fit to keep them in line with the goals of the fund.

So as you get older, the investment manager that controls how the fund is invested would generally make the 2045 fund more conservative as the years go by.

The 100-Age Rule

There is a widely used formula that uses your age to calculate what percentage of stocks you should have in your portfolio. The formula subtracts your age from 100 and the answer would be what percentage of stocks you should own. The rule has become somewhat outdated but still expresses the general thought that as you get older, you might need to take less risk in your investment portfolio. You can read more about that rule HERE

The “younger people should have more stocks in their portfolio” idea doesn’t factor in things like personal risk tolerance or retirement income need however.

For instance, a young person that is completely risk-averse, meaning they might want more conservative investments than the employee next to them. On the other extreme you might have the 55+ year old that is completely confident in the market and wants to take the maximum risk possible, therefore investing mostly in stocks to try to achieve the highest possible return.

Another aspect that the 100-age formula doesn’t take into account is how much risk an investor actually needs to take to achieve their retirement income goals. For example, an employee that also has a military pension might not need a ton of growth over their working years to get the amount of income they will need from their Lockheed 401k. Therefore, they could take less risk, and possible go with a more conservative portfolio to hit their retirement income goal.

In summary, it’s a good idea to figure out if the Target Date Fund that corresponds to your birthdate is the right one for you based on a number of different factors. If you need help determining if you are invested correctly, feel free to reach out to me at Brian@TheAeroAdvisor.com or fill out the form below. We’ll even get you a free, one-page guide to your 401k.