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Freedom for Retirement™ is the podcast designed to help you move beyond the fear of the complexity of finances so you can be financially free to achieve personal significance. Tune in with Josh Duncan each week to turn fear into fuel that drives you into Freedom & Significance.
Welcome to the Freedom for Retirement podcast. If you're a high earning professional, business owner, or someone approaching retirement and wondering whether you are truly on track, you are in the right place. This podcast is all about helping you make smart, confident financial decisions without the fear, confusion, or sales pressure that so often comes with money advice. Each episode is designed to break down complex topics like retirement planning, investing, taxes, and cash flow in plain English so you can understand what really matters and avoid the most common and costly financial mistakes. Everything you hear here is educational, fiduciary focused, and grounded in real world planning experience working with clients just like you.
Josh:I'm your host, Josh Duncan, partner at F5 Financial Planning. Let's get started.
Josh:Let me ask you something. You've been contributing to your four zero one k for years, maybe even decades. You've been responsible. You've been consistent. And somewhere along the way, someone told you to just pick a target date, fun, set it, and forget it.
Josh:Maybe it was a human resource rep during your first week on the job. Maybe it was a financial article you skimmed at lunch. Maybe you just looked at the options, felt overwhelmed, and picked the one with the year closest to when you thought you'd retire. Sound familiar? Here's the thing.
Josh:That decision, while completely understandable, may be one of the most costly financial defaults you've ever made. Not because target date funds are evil, they're not, but because the very thing that makes them feel safe is also the thing that's quietly working against your financial freedom. Today, I wanna pull back the curtain on Target Baked Funds. We're going to talk about five things. The convenience trap they set, the flaws baked into their glide path, the psychological cost they carry, how to design a more intentional strategy, and how to claim real financial sovereignty over your own capital.
Josh:By the end of this video, you'll have a clear picture of whether your current allocation is actually serving your life or just serving a formula. Let's get into it. I wanna start by giving target date funds their due. When they were first introduced, they solved a real problem. Most Americans weren't investing at all, or they were making emotionally driven decisions that hurt them badly.
Josh:Target date funds brought structure and simplicity to people who needed both. And for a lot of folks, something is absolutely better than nothing. But here's where we have to be honest with ourselves. The set it and forget it nature of these funds creates what I call a false sense of financial security. You look at your statement, the balance is going up, and you think, great.
Josh:I'm taken care of. But what you're really doing is delegating some of the most important decisions of your financial life to a rigid algorithm that doesn't know anything about you. Think about it this way. Imagine you walk into a tailor and say, I need a suit for a really important event. The tailor looks at you, hands you a suit off a generic rack, and says, you're about average height, so this should work.
Josh:Would you feel confident walking into that event? Of course not. You'd want something measured and fitted to your body, your specific dimensions. Your financial life deserves the same level of precision. Modern markets are volatile.
Josh:We've seen dramatic downturns followed by explosive recoveries. We've seen inflation spike in ways many people hadn't experienced in their lifetimes. We've seen entire industries disrupted in a span of a few years. A single target date does not and cannot account for any of that complexity. And here's what really concerns me.
Josh:When you delegate your financial autonomy to an automated fund, you also lose the habit of engaging with your money. You stop asking the important questions. Is my allocation aligned with where I wanna be in five years? What does my life actually require in terms of income, liquidity, and growth? Am I on track, not just for retirement, but for the life I actually wanna live?
Josh:Convenience has a price. And in this case, the price is a quiet erosion of your financial intentionality. Now let's get into the mechanics because this is where I really want you to pay attention. A target date fund operates on what's called a glide path. The basic idea is this.
Josh:When you're young, the fund holds more stocks for growth. As you approach your target year, it gradually shifts toward bonds, which are considered more stable and conservative. The logic seems reasonable on the surface, but let's think about what that actually means in practice. First, that shift towards bonds is driven almost entirely by one variable, your age. Or more accurately, how many years remain until your target date.
Josh:The fund doesn't know your income. It doesn't know your expenses. It doesn't know whether you own property or carry debt. It doesn't know if you plan to retire at 55 or work until you're 70. It just knows the date.
Josh:Here's the problem that creates. Bonds were never meant to keep up with inflation. In fact, they cannot since they're a loan investment. If this is the case, and inflation is like a freight train that cannot be stopped, why would you own bonds in a long term investment account that is intended to last you your entire life and possibly beyond? What someone else is telling you is safe is really causing you to have less wealth.
Josh:Why is an increasing bond allocation considered in your best interest? It seems to me it's not in your best interest for a lifetime investment. Second, and this one really matters, the glide path assumes a clean, predictable exit. It assumes you'll work until your target year, retire, and begin a steady drawdown. But that's not how most people lives actually unfold.
Josh:What if you wanna retire five years early? What if you wanna pivot careers at 45 and start a business? What if you need to fund a child's education or handle an unexpected medical expense or take a sabbatical? The gout wide path doesn't flex for any of that. It just keeps plotting toward the date.
Josh:And third, maybe most importantly, the glide path treats you as a demographic average. You are not a demographic average. You are a specific person with a specific risk tolerance, a specific vision for your life, and specific capital requirements that no algorithm can calculate on your behalf. The fund might be optimized for the average investor born in 1975, but you are not the average investor. You are you, and your portfolio should reflect that.
Josh:I wanna shift gears here for a moment because I think this section is actually the most important one, even though it's not about numbers. Let me ask you a different question. When you think about why you're investing in the first place, what comes to mind? Is it a number on a spreadsheet, or is it something else? The freedom to leave a job that's draining you, the ability to travel while you're still healthy enough to enjoy it, the ability to be present for your kids or grandkids without constant weight of financial stress.
Josh:For most people I work with, wealth isn't an end in itself. It's a tool. It's a means to something that actually matters. Time, autonomy, purpose, freedom. And here's where target date funds quietly rob you.
Josh:When your portfolio is optimized for a date decades away, and it's built around a conservative glide path that prioritizes stability over growth, you may be watching that portfolio stagnate. Growing, yes, but not at the required pace to get you to your real goals. Not the retirement at 67 goal, your goals. The ones that might require capital in ten years, or seven, or three. There's an economic term for this, opportunity cost.
Josh:Every year you spend, over allocated to bonds or cash equivalents because a formula says you should be conservative, is a year of potential growth you're not capturing. And in a long game of compounding returns, those lost years are enormously expensive. But beyond the math, there's a psychological cost too. When your portfolio doesn't feel connected to your life, when it's just a number on an app that updates every quarter, you lose the sense of agency that drives confident financial behavior. You feel like a passenger instead of a driver, and that feeling matters.
Josh:People who feel engaged and empowered in their financial lives make better decisions. They save more. They invest more intentionally. They ask better questions. Wealth should be a tool for intentional living.
Josh:It shouldn't give you time sovereignty, the ability to spend your days doing things that are meaningful to you. A target date fund, by design, cannot make that connection. It can only make a generic promise about a date. Okay. So we've diagnosed the problem.
Josh:Now let's talk about what to do about it. The alternative to a glide path isn't chaos. It isn't reckless speculation. It's intentional design. Here's the framework I use with clients.
Josh:Instead of optimizing your portfolio around a single target date, we organize it around what I call lifestyle milestones. Think of your financial life as a series of chapters, each with its own goals, timeline, and capital requirements. Chapter one might mean building the foundation, your emergency fund, paying down high interest debt, and starting to invest. Chapter two might be acceleration, maximizing your investment contributions and beginning to build real wealth. Chapter three might be a specific goal, a business, a real estate investment, funding education.
Josh:And chapter four might be the transition into your version of financial independence. And chapter five might be legacy, how you want your wealth to impact the people and causes you care about. Each of those chapters requires a different posture from your portfolio. Now, with that framework, I think about three broad buckets. The first bucket consists of US based companies, both large and small, that provide growth, dividends, and investment in the future.
Josh:This is a foundational piece of the framework because US based companies have performed well historically and provide a unique diversification in a global marketplace. This will be your largest bucket. The second bucket consists of developed international companies. This provides geographic and economic diversification that has proven helpful historically since we never know how different areas of the world will perform. This would be your second largest bucket.
Josh:The third bucket consists of more volatile investments, such as emerging markets and real estate investment trusts, at the same or similar allocation as the second bucket. This bucket provides growth opportunities, but will swing more in value. As in gambling, it's purposeful, and it's sized appropriately so a bad outcome doesn't derail your overall plan. What makes this framework powerful isn't just the structure, it's the engagement it requires. Because when you're actively thinking about why you own, what you own, and how it connects to your actual goals, you make fundamentally better decisions.
Josh:You're not reacting to headlines. You're responding from a place of clarity and intention. And when life changes, because it will, you can adjust. You're not locked into a formula. You have the flexibility to pivot if your goals or plan change.
Josh:Remember, we don't react to the market, but stick with our plan. Let's bring this home. I wanna give you something concrete to walk away with, a practical starting point for auditing where you are right now. Here's a simple checklist. Pull up your current investment accounts and ask yourself these five questions.
Josh:One, is my actual asset allocation today? Not what I intend it to be. What does it literally show? What percentages in stocks, bonds, cash, and alternatives? Does that allocation reflect my real risk tolerance in my real timeline?
Josh:Two, how much fixed income am I holding, and why? Is it because I generally serves my current life situation, or is it because I fund defaulted to it based on my age? Three, what is my personal definition of financial independence? Have I actually written it down? Do I know how much capital it requires?
Josh:And is my current portfolio strategy moving me toward that specific number? Four, when was the last time I actively reviewed my allocation and made a conscious decision? Not to just let it run on autopilot. If the answer is never, or I honestly can't remember, that's worth paying attention to. Five, is my portfolio optimized for a date or for my life?
Josh:This is the big one. A date is a placeholder. Your life is specific, dynamic, and deeply meaningful. Your portfolio should reflect that reality. I wanna leave you with a mindset shift that I think can generally change your relationship with money.
Josh:Stop thinking of yourself as a passive passenger in your financial journey. Start thinking of yourself as the intentional architect of your capital. An architect doesn't just pick a blueprint off a shelf. They sit down, understand the purpose of the building, study the landscape, account for the elements, and design something that serves a specific vision. That's exactly what your financial life deserves.
Josh:This doesn't mean you have to do it alone. In fact, I'd argue that the most financially successful people I know are the ones who engaged Trusted Advisor, asked hard questions, and built a plan that was genuinely theirs. Not a generic approximation of someone like them. But it does mean showing up. It means being curious.
Josh:It means being willing to look under the hood of your own finances and ask whether what you find actually serves the life you wanna live. Let me quickly recap what we cover today. First, we talked about the convenience trap, how the set it and forget it nature of target date funds creates a false sense of security and erodes your financial intentionality over time. Plus, why do you need bonds in your portfolio? Second, we examine the flawed glide path, how age based bond allocations can work against you achieving your financial freedom and your goals.
Josh:Third, we explored the psychological and financial cost of a portfolio that isn't connected to your actual goals. The opportunity cost of excess conservatism, and the loss of agency that comes with being a financial passenger. Fourth, we introduced a milestone based framework for intentional allocation, one organized around your life chapters, not just a retirement date, and built around three purposeful buckets, US equity, international equity, and growth with higher volatility. And fifth, we walk through a practical audit checklist to help you start evaluating whether your current portfolio is actually aligned with your personal vision of financial freedom. Here's my bottom line.
Josh:Target date funds are not inherently bad, but they are inherently generic. And generic is the enemy of extraordinary. Your financial life is not generic. It shouldn't be managed like it is. You deserve a strategy that's built around your values, your milestones, your definition of
Josh:subscribing to the podcast and leaving a review. It helps more people find the show and continue learning how to make smarter financial decisions. I'm Josh Duncan, partnered F5 Financial Planning. If you would like to learn more about how we help our clients achieve financial freedom for personal significance, please visit our website at www.f5fp.com. Thanks for listening, and I'll see you in the next episode.