Dimensional Fund Advisors has launched the Dimensional Target Date Retirement Income Funds, which were developed to help manage uncertainty around consumption in retirement.

Read: Just offering target-date funds not enough for recordkeepers

The series of 13 funds is designed to address market, interest rate, and inflation risks leading up to and throughout retirement. The funds use asset allocation strategies to invest in income-growth investments (global equities and fixed income), as well as income risk management investments.

The portfolios aim to address market, interest rate, and inflation risks with a hedging strategy based on established liability-driven investing (LDI) theory and an inflation-protected fixed income portfolio.

Allocations between income-growth investments and income risk management investments shift over time to become more conservative as individuals near retirement age, as well as through retirement, to manage relevant risks and support retirement consumption.

“A good target date solution should balance the tradeoffs between growth investments and an appropriate risk-hedging asset,” David Booth, chairman and co-CEO, said in a statement.

He added, “Our target date strategies are designed to manage relevant risks, in particular, interest rate and inflation risks, so investors are less exposed to the effects of random market forces. This may reduce uncertainty about how much consumption their investments will support in retirement, and enable plan sponsors, consultants, and financial advisors to use meaningful information about expected retirement consumption to help investors plan for a more successful retirement.”

While there’s been plenty of discussion in the industry about managing risk, there hasn’t been all that much about the risk to the retiree of inflation. The general target-date fund plans for risk in the type of investment, but not the risk to the retiree of inflation eating away at savings.

Earlier this year a patented target-date allocation model, christened Safe Landing Glide Path, took some of this into account by transitioning its investors almost exclusively into cash and Treasury Inflation-Protected Securities (TIPS).

Instant Insights /

Target-date solution managing for income growth, risk launches

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