A growing number of retirement savers who consistently participate in 401(k) plans are putting their money in target-date funds. Target-date funds invest in a mix of stocks, bonds and other assets based on your age and the date that you expect to retire. They rebalance over time, becoming less focused on growth (and stocks) and more focused on income (and bonds), as you get closer to your "target" retirement date.
"They can make a lot of sense for more hands-off investors," said Morningstar analyst Janet Yang. "If an investor isn't willing or able to do the research to pick large-cap, small-cap, international or fixed income funds and then also combine them into a sensible portfolio and rebalance at least annually, then target-date funds, which combine all of the above into a single holding, might be a good option."
Total assets in target-date funds stood at $690 billion at the end of June, according to Morningstar, representing a third of new assets among the leading asset management firms. Those funds are the top choice for many 401(k) investors. One third of retirement savers with target-date funds held all of their 401(k) account in such funds at the end of 2012, according to a new report from the Employee Benefit Research Institute.
But while they are a popular investment in many retirement plans, they may not be right for everyone.
Here are a few considerations to make in order to ensure that the target-date fund in your 401(k) doesn't retire before you do:
Bottom line: You want to make sure you have a mix of stocks and bonds that allows for enough growth so that your 401(k) does not retire before you do.
—By CNBC's Sharon Epperson