The best set-it-and-forget-it retirement funds

But T. Rowe embraces substantially more equity risk, especially in its 2015 fund. This fund's 70%/30% split between equities and fixed income seems to me as an excellent balance to strike upon retirement. Capital is well protected by that broad bond buffer, but it still has room to grow.

And grow it must. If you accept the premise that you will need to draw 5% of your portfolio's value every year to supplement your other retirement income, it will have to grow roughly twice that much to compensate for inflation and the taxes you'll pay on withdrawals.

Aging and losing a step

The less equity risk these funds accept, the poorer their returns.

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You'll notice I haven't mentioned the yields of these funds, and here's why: Yield is the wrong goal to seek when designing a retirement portfolio.

A bond salesman naturally tells retirees to focus on yield, because that's what he's selling. But a bond yielding 5% costs you purchasing power every time inflation ticks up; with inflation at 2%, the principal a $10,000 bond returns 10 years later is worth $8,300.

None of these portfolios yields anywhere near 5%; the current yield on Fidelity's 2010 fund, at 2.39%, is the highest among these six. Rather, expect to withdraw your 5% in the form of 2% in income and 3% from redeeming shares each year. Since the value of the portfolio is going up well more than that, you aren't withdrawing principal, only a portion of profits.

The 2015 funds are clinging to that 10%-return goal; the 2010 funds are slipping below it.

Last week the National Center for Health Statistics reported that average life expectancy in this country has risen to 77.9 years, from 69.6 years in 1955. But that's misleading, dragged down by accidental deaths and childhood disease. If you make it to retirement age, the NCHS estimates you'll live to 83. And that's an average; if you survive to 83, you are likely to live to 90.

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And so, at age 65, your portfolio planning horizon is 25 years. With even modest inflation, prices will double in that period; that's why you need enough equities to keep your portfolio balance growing as well.

You never want to end up on a fixed income.

At the time of publication, Tim Middleton didn't own any securities mentioned in this article.

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