Do you need a managed retirement account?

Will your nest egg last?
Will your nest egg last?

I'm trying to decide whether to invest my savings in a managed account or a target-date retirement fund. Which do you think I should choose? -- W.B.

This is not a decision you should get too worked up about. Going with one of these investment vehicles rather than the other is not likely to make or break your retirement. Indeed, as long as you're making sensible decisions in the rest of your retirement planning -- saving enough during your working years, doing periodic checkups late in your career to see whether you have sufficient resources to leave your job, etc. -- you should be able to achieve a reasonably secure retirement with either a managed account or a target-date retirement fund.

I say this not only to ease any concerns you might have about this decision, but also to assure people whose retirement plans don't provide access to a managed account that they're not operating at a serious disadvantage. The fact is that a managed account isn't an option in most plans. According to a 2017 survey by the Callan investment consulting firm, while more than 90% of 401(k)s and similar plans include target-date funds in their roster, less than 40% offer managed accounts.

That said, if you do have the choice between a managed account and a target-date fund, there are some reasons you might prefer one to the other. Before I get to those reasons, however, it's important to understand how these two investments are similar and how they're different.

Related: How much income will you actually need in retirement?

When it comes to investing, both managed accounts and target funds essentially give you an asset allocation strategy -- that is, they help you divvy up your assets between stocks and bonds in a way that seeks to strike an acceptable balance between risk and return.

Target-date funds typically rely on your age in assigning you an appropriate stocks-bonds mix. So, for example, if you're in your 20s and your expected retirement date is a good 40 or so years away, you might invest in a 2055 or 2060 target-date fund, which would typically have upwards of 90% of its assets in stocks and 10% in bonds. As you age, a target-date fund begins to gradually move more of its assets toward bonds so that by the time you're retired, your stock stake might have dwindled to, say, 30% to 40%.

Not all target-date funds give someone of a specific age the same stocks-bonds mix or follow the same "glide path" in going from mostly stocks to mostly bonds. But the idea is to allow you to benefit from stocks' higher long-term returns when you're young (even if those returns may not be as generous as in the past) and have plenty of time to rebound from setbacks and then shift more toward bonds as you near and enter retirement and want more stability.

Related: When is the right time to retire?

Managed accounts also give you an asset allocation strategy, but look at more than just your age to arrive at your recommended stocks-bonds mix. For example, if you sign up for a managed account, your 401(k) plan might provide such information as your balance, your income and whether your company has a traditional pension in addition to your 401(k). All of these things can affect the stocks-bonds allocation the managed account recommends, as well as the managed account firm's assumptions about the performance of different asset classes. You may also be able to further refine that asset allocation by providing information about your financial goals, what sort of risk level you're comfortable with, the investments you hold outside your 401(k) and when you plan to retire.

But managed accounts in some cases can do more than invest your savings. Some may be able to provide advice or guidance that can help you determine whether you're financially prepared to retire or help you decide how to draw on your nest egg in retirement. Some may provide online or phone access to representatives who may be able to answer questions or offer advice on specific situations.

Since a managed account can build a portfolio based on more than your age and also provide more than just investing advice, it may seem the obvious choice. But there's also the matter of cost. Although the cost of both target-date funds and managed accounts can vary widely, managed accounts are typically more expensive. According to a 2014 Government Accountability Office report, managed accounts charge fees that range from 0.08% of assets to 1% a year in addition to the fees charged by the funds held within the managed accounts.

So depending on what the managed account in your plan charges, you could be giving up a sizable share of investment returns.

A recent Morningstar study cited stats showing that managed accounts may be able to overcome the drag of higher years with higher returns. But I don't consider the evidence very compelling. The comparison period was relatively short -- just five years -- and the margin of outperformance was pretty slim, about a quarter of a percentage point a year. Besides, these figures represent the average returns of many target-date funds and many managed accounts, so there's no assurance these figures would be meaningful for choosing between the managed accounts and target-date funds of a particular plan. And even if they were, that doesn't a managed account would outperform in the future.

Related: What's the best way to invest $100,000 in today's market?

So which should you go with? There's no way I or anyone else can give a definitive answer to that question, but I can offer a few guidelines.

If you're not comfortable making investment decisions on your own and your main goal at this point is just to ensure that your retirement savings are being invested in a reasonable way, then a target-date retirement fund should probably be just fine. That's especially the case if your retirement account balance is relatively small, which would be true for most people just starting out.

If, on the other hand, your finances are more complex -- maybe you've got sizable sums in taxable accounts and/or IRA rollovers or you're getting ready to retire and need to draw on your nest egg in a way that won't deplete it too soon -- then a managed account may be the better option. I say "may be" because it will depend on what specific services the managed account offers and what it charges for them.

If you like the idea of a managed account but you have to shell out anything in the neighborhood of 1% a year or more to get it, you may want to consider going with a lower-cost target-date fund and consulting an adviser separately. So, for example, if you want help for a specific issue -- say, deciding where to invest an IRA rollover or deciding when to take Social Security -- as opposed to ongoing advice, you could always hire a financial planner willing to work for a flat fee or on an hourly basis rather than paying a percentage of assets each year.

Finally, remember that this decision isn't irrevocable. If you go with a target-date fund and find you're uncomfortable with its stocks-bonds mix or you decide you'd like some extra help because your financial situation is growing more complex, you can always switch to a managed account.

Or if you opted for a managed account and feel you're not getting enough value for the extra fees you're paying, you can move your savings into a target-date fund. To avoid disruptions in your investing strategy, you wouldn't want to make such switches willy-nilly. But knowing that you're not locked in may, if nothing else, at least take some of the pressure off making a choice.