The last 10 to 15 working years before retirement is a powerful and precarious time for defined contribution plan members, with roughly half of the retirement savings they’ll accumulate in their lifetime built up in that window of time as they reach their peak earning years, according to Glenn Dial, vice-president of retirement thought leadership research at American Century Investments.

Speaking during Benefits Canada’s 2025 DC Investment Forum in a session sponsored by CIBC Asset Management, he noted plan members will also be uniquely vulnerable to market shocks during that time since they occur on average every eight years and can take years to recover from.

Indeed, the older people get, the more risk averse they get, said Dial. In the wake of the pandemic market meltdown in 2020, the largest market outflows happened among market participants age 65 and older.

Read: Coronavirus pandemic affecting retirement plans, savings: survey

As well, many plan members leave the workforce earlier than expected. Referring to a 202 survey by the Employee Benefit Research Institute, half (48 per cent) of U.S. retirees retired earlier than they planned and 33 per cent retired before age 60. The reasons were commonly involuntary, such as a health issue or a company downsizing.

All these data points reinforce that “we need to look at those last 10 years under the microscope, from equity allocation . . . but also just general allocation” of target-date funds, said Dial.

There are indications that many employees may not need as much equity market exposure closer to retirement, he added, sharing U.S. DC plan data that found employee savings rates, including the employer match, have doubled in the past two decades, reaching 14.1 per cent last year (up from seven per cent in 2005).

Read: How is rising inflation impacting retirement savings?

The U.S. Department of Labour identifies savings rates, along with risk tolerance, as the biggest determinant of equity allocation in target date funds, but Dial said providers may not be keeping up with changing savings rates. A 2021 study in the Journal of Retirement suggested the increased savings rate should have led to a “mass replacement” of aggressive target-date funds with more moderate funds that have between 15 and 20 per cent less equity.

He recommended DC plan sponsors review their target-date fund lineup with an eye to the funds’ risk level in the 10 years before retirement and the de-risking path.

“In some cases, [plan members] can take less risk, in some cases they can take more risk and that’s the point. Each one of your employee bases is unique — their needs, risk tolerances and savings rates are unique. The one mistake I’ve seen folks make in the past was [saying], ‘Here’s this really good target-date fund, it’s a good fit for every one of my clients.’”

Read more coverage of the 2025 DC Investment Forum here.