[Weekend Money] Key Factors to Consider When Choosing a TDF for Retirement Security

Recently, as investments aimed at preparing for retirement funds such as retirement pensions have become more active, the target date fund (TDF) market—lifecycle-based, customized asset allocation funds—has been rapidly expanding. Analysts note that the two most important considerations for choosing a successful TDF are the retirement year and the asset allocation ratio.

According to NH Investment & Securities, as of the end of the second quarter of 2026, Korea's retirement pension reserves stood at KRW 554 trillion, a 10.5% increase compared to the end of the previous year. Defined contribution (DC) plans and individual retirement pensions (IRP), where funds are more heavily invested in vehicles like exchange-traded funds (ETF) rather than principal-guaranteed products, are growing rapidly compared to defined benefit (DB) plans, which emphasize principal-guaranteed products. Consequently, the proportion of non-principal-guaranteed assets within retirement pensions rose from 25% at the end of last year to 36% at the end of the second quarter. The increase in pension reserves is especially pronounced among securities firms.

Within retirement pension accounts where non-principal-guaranteed products like DC and IRP are prominent, TDFs hold the largest share alongside ETFs. TDFs automatically allocate assets within the fund according to the investor's current life stage, and the market has grown significantly in the United States since the introduction of the retirement pension default option.

As of the end of July 2026, lifecycle-type funds centered on TDFs had total net assets of KRW 34.5 trillion, with continued inflows of capital. Jae-seok Ha, a researcher at NH Investment & Securities, commented, "Since July 2023, Korea has begun to implement a system where, if no direction is given for managing DC and IRP accounts, the funds are operated on a predetermined portfolio through the designated retirement pension default option system. Because the main retirement pension default option portfolios include TDFs, the popularity of TDFs is expected to continue," he added.

With so many TDFs available in the market, it is not easy for investors to choose between them. Even within the same management company, there are often multiple TDF products operated with different strategies. The suitability of an asset allocation fund can vary depending on an investor’s specific circumstances and environment.

NH Investment & Securities identifies vintage, referring to the target retirement year, and asset allocation ratio as the primary factors to consider when selecting a TDF. Researcher Ha explained, "Investors should consider their financial situation and the time remaining until retirement to determine the appropriate equity allocation when selecting a TDF. Among major domestic TDFs, the proportion of risk assets by vintage is about 52% for the 2030 vintage and 77% for vintages after 2060. For 2025 vintages, where the retirement date has already arrived, the risk asset ratio is about 35%. Conservative investors focused on risk management should select a 2025 vintage; those seeking balance should consider 2030 vintage; and more aggressive investors with a longer horizon until retirement, aiming for higher returns, should opt for vintages beyond 2040."

Even within the same vintage, asset allocation strategies differ between TDFs, so investors must assess the actual equity ratios in addition to the vintage. Researcher Ha noted, "Each management company has a different 'Glide Path'—the allocation trajectory for TDFs by lifecycle stage—which means that the risk asset ratio at retirement also varies. Some management firms maintain a level of risky assets after retirement, while others reduce it gradually over time. According to the Glide Path, for the 2025 vintage, Shinhan MaumPyeonhan Jogeok TDF has an 18% allocation to risky assets, whereas other TDFs in the same vintage range from 30% to 40%, which is relatively high. The risk asset proportion for the 2030 vintage also ranges from 36% to 52%."

From an asset management strategy perspective, TDFs can be divided into those that implement asset allocation primarily through passive funds like ETFs, and those that pursue higher active returns using active funds. Researcher Ha stated, "Except for some ultra-long-term vintages beyond 2050, the long-term cost efficiency of passive-centric TDFs is significant. In terms of foreign exchange strategy, products that hedge currency within the fund or flexibly adjust the hedge ratio according to market conditions are advantageous for overall stability."

For the 2025 TDF vintage, where risk management is crucial, stability is key. Products such as NH-Amundi Hanaro Jogeok TDF 2025, Shinhan MaumPyeonhan TDF 2025, and Hanwha LIFEPLUS Jogeok TDF 2025 have exhibited low volatility. Among the 2030 TDF vintage products that must balance returns and stability, Midas Basic Jogeok TDF 2030, Hanwha LIFEPLUS Jogeok TDF 2030, Shinhan MaumPyeonhan Jogeok TDF 2030, and Korea Investment Jogeok TDF Alaseo ETF Focus 2030 have displayed high Sharpe ratios (a metric indicating return relative to risk).

For vintages like 2040 and 2050, which feature higher allocations to risky assets and are expected to pursue relatively higher returns, it is effective to focus more on return. Researcher Ha explained, "Among these vintages, KB Dynamic Jogeok TDF, Hanwha LIFEPLUS Jogeok TDF, and Shinhan MaumPyeonhan Jogeok TDF have all posted excellent three-year returns."

Investment via ETFs is also possible. There are TDFs among listed ETFs as well, which primarily implement asset allocation via ETFs. ETF vintages such as 2045 and 2050 have formed relatively large funds. In terms of portfolios, TIGER TDF 2045 Jogeok pursues passive investing focused on the S&P 500 and global equities, while KODEX TDF 2050 Active Jogeok and RISE TDF 2050 Active Jogeok incorporate thematic ETFs—such as semiconductors and robotics—and thus pursue active investing. TIGER TDF 2045 Jogeok, for instance, directly invests in S&P 500 components, with the equity allocation reaching roughly 80%, the highest among the group. Researcher Ha concluded, "These TDF ETFs offer comparable performance to traditional TDF funds of the same vintage. Therefore, investors focusing on the high transparency and low costs that are hallmarks of ETFs may find that investing in TDF ETFs can be an effective option."

This content was produced with the assistance of AI translation services.