Are you keeping pace? Total U.S. retirement market assets mushroomed to $21.5 trillion in 2014 — up 9.6% from a year earlier, according to Spectrem Group's Market Insights Report 2015.

The increase is due to worker contributions to retirement accounts such as IRAs and 401(k)s, as well as earnings achieved by stock mutual funds and other securities in which workers invested.

A rise of 9/6% isn't bad. Yet...it's not great, either. The broad market gained nearly 14% last year.

So does that mean that many investors did a poor job carrying out their retirement plans?

Bad execution does not explain the whole shortfall. Withdrawals, which retirees use for income, were one reason why total retirement account assets did not climb as fast as the market.

People not yet retired also borrowed from their accounts.

But another reason is that a lot of retirement account money was invested in securities that dramatically underperformed the market: cash, CDs, bonds, bond funds and even categories of stocks and stock funds that lagged, such as commodities.

The inability of many workers to identify assets that grow fast enough given their age, goals and risk tolerance is why many retirement experts urge workers and company-sponsored retirement plans to adopt investment options such as target date funds. They are intended to make it easier for workers who have modest investment skills to be more successful — choosing investments that will grow when they are young and produce income when they are older, in retirement.

Target date funds tailored for shareholders who plan to retire this year, for example, had a total return on average of 4.97% over the 12 months ended March 26.

Target date funds designed for shareholders who plan to retire in 2050 averaged a return of 7.84%. Those target date funds hold higher percentages of stocks, assets that grow better over time than bonds.

 

 

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