Since the advent of 401(k) plans, employees have been empowered to take responsibility for their retirement assets by controlling the placement of their investment dollars. Over time, many employees have been ill-equipped and uncomfortable in making those decisions. In response, plan vendors have come up with a number of helpful models, two of the more popular being "lifestyle" and "age-based" asset allocations.

Both models contain various "mixes" of stock investments as well as bonds and cash. Utilizing the relationship between an employees time horizon versus return on investment, the more aggressive models have higher percentages of stocks and the more conservative models have higher percentages of cash and bonds.

The "lifestyle" models (they may be called "asset allocation" models) generally set up 3 to 5 different models that range from conservative to aggressive allocations. Although the model managers may internally change the actual investments, the basic allocation ratios remain pretty much the same.

"Aged-Based" models are different in that they aim toward a specific "retirement" date and grow more conservative as that date approaches. As a starting point, the younger you enter this model, the more aggressive the investments will be. The theory is that employees tend to either never rebalance or short-term market time their 401(k) positions without ever achieving a disciplined strategy. This model claims to accomplish that task.

Sadly though, the model creates a bigger problem for the employee as he or she transitions into retirement.

Foremost is the message that an employee needs to be 100% in cash by the time they reach retirement age. In fact, for many retirees, nothing could be further from the truth.

With Americans enjoying longer life expectancies, most planners recommend keeping at least some funds in growth if for no other reason than to offset the impact of inflation.

Secondly, retirement planning is a process that covers the time horizon both pre-retirement and post-retirement. "Aged-based" models ignore the years spent in actual retirement as a measure of "optimizing" a proper asset allocation portfolio. For example, if you're 55 years old with a moderate risk tolerance and you presented a planner with a 10-year time horizon (age 65 retirement age) or a 25-year time horizon (your assumed mortality), you would find most planners coming back with two different portfolio allocations because of the time horizon differential.

Lastly, "aged-based" models run contrary to the old adage of sticking through slight downturns in the market. The "aged based" models simply plow ahead with their pre-ordained course without any nod to this. While they may, over time, continually seek safer ground, they also may put someone in the position of not getting a fighting chance to go through a recovery of lost ground.

If an employee insists on taking the "lazy" approach, then "aged-based" models may have their place, but with the amount of money being accumulated in 401k plans, employees would be wise to pay a little more attention to their retirement funds.