Many target date funds are too aggressive in their exposure tostocks, putting investors at risk for market downturns afterretirement, when they can least afford it, warned PutnamInvestments executives Tuesday at a retirement panel talk in NewYork.

At the event, Putnam announced the launch of a retirementinvestment think tank, Putnam Institute, whose initial study showsthat equity allocations in target date funds since the 2008financial crisis have typically ranged from 35% to 65%. However,the institute’s research director, W. Van Harlow, said thepercentage of stocks in a post-retirement portfolio should moreappropriately range between 5% and 25%.

“Many target date funds are well above that into retirement,”said Van Harlow. “The government is becoming concerned about thisissue. Plan sponsors don’t know what’s going on in these targetdate retirement funds.”

Van Harlow’s first study for the Putnam Institute, “Optimal Asset Allocation in Retirement: A Downside RiskPerspective,” notes that the higher equity allocations used inmany popular retirement investment funds “significantlyunderestimate the risks” that these higher-volatility portfoliospose for retirees’ income.

“We find that the range of appropriate equity asset allocationsin retirement is strikingly low compared with those of typicallifecycle and retirement funds now in the marketplace,” Van Harlowwrites. “In fact, for retirement portfolios whose primary goal isto minimize the risk of depletion and sustain withdrawals, optimalequity allocations range between 5% and 25%.”

Van Harlow admitted that in the 1990s, he had himself beeninvolved in the design of target date funds with high equityallocations. Technology has since evolved to show the risk of sucha strategy, he said.

And, he added, that while he has been in the industry for 25years, it has been only in the last few years that he has come toappreciate the “sequence of returns” risk, which shows that stockmarket volatility over time can hurt an nvestor just as retirementbegins and have permanent negative consequences on the retiree’sassets.

“We were doing the best we could at the time,” he said. “We wereguessing.”

Also at the event, Bob Reynolds, president and chief executiveof Boston-based Putnam Investments, spoke of retirement savings inrelation to the U.S. debt reduction crisis in Washington, D.C., andcongressional proposals to cut the deficit by cutting SocialSecurity and 401(k) tax benefits.

Noting that Americans are currently on track to replace just 64%of their income in retirement—a percentage that would dropsubstantially if Social Security were cut drastically—Reynoldsurged financial reform to be viewed as “a math problem” that can beworked out if done thoughtfully.

“To involve this nation’s savings in deficit reduction is ahorrible tradeoff,” he said. “Social Security is a vaccine againstelderly poverty, which would be a disaster for this country.”