A majority of Gen Z and millennials use target-date funds for retirement savings, data shows.

But some retirement experts argue they are too conservative.

Alternatives to target-date funds include lifestyle funds and hiring financial advisors.

Target-date funds are astoundingly popular, especially among younger investors.

According to Fidelity data, 81% of Gen Z investors have all of their 401(k) balance in target-date funds as of Q2 this year. For millennials, it's 70%. Total assets under management in the funds grew to a massive $4.8 trillion in 2025, according to Morningstar.

It's easy to see why the investment vehicles are so commonly used. Besides the fact that they're the default option for many workers who enroll in their employers' savings plans, they're a convenient set-it-and-forget-it approach to retirement investing. The fund auto-allocates your investments to stocks and bonds as you approach retirement to ensure you're taking on an appropriate level of risk.

But speaking with Business Insider last month, Bill Bengen, the creator of the famed 4% rule for retirement savings, criticized the funds, and said investors would be better off using other approaches.

His argument essentially boiled down to the assumptions on risk that target-date funds make. They're far too conservative for his liking.

"I don't believe in the target-date concept," Bengen said. "I think it creates poor allocations for retirees."

Let's dive more into the nuts and bolts of target-date funds and their potential pros and cons, and why Bengen thinks there's a better approach for investors.

When deciding to go into a target-date fund, you choose a year that is likely to generally line up with your retirement age.

For example, someone starting work today at 22 who might expect to work until age 67 would retire around 2071. So, they might choose a 2070 target-date fund like the Vanguard Target Retirement 2070 Fund (VSVNX) or the Fidelity Freedom Index 2070 Fund (FRBVX).

The funds will then allocate roughly 90% of your money to US and non-US stocks, with the remainder in bonds.

As you get closer to your target retirement date, the fund will reduce its stock exposure and increase its bond allocation to preserve capital and dial back risk. Bonds are generally less risky than stocks, though they tend to offer smaller average returns.

At the retirement date, the fund ends up with a 50% allocation to stocks and has 50% in bonds. The fund then gets even more conservative: several years after the target date, it eventually ends up putting 70% of your money into bonds and just 30% into stocks.

For Bengen, it's simply far too small an allocation to stocks, especially as people live longer and retirement years stretch on into decades.

Bengen's preferred allocation for retirees is 65% stocks and 35% bonds. Given recent stock outperformance, retirees can safely withdrawal 4.7% of their portfolios per year, he said, and that money should last you around 30-35 years, if not longer. Pre-retirees should have a 100% allocation to stocks, he said.

"Retirees need returns almost as much as pre-retirees do," Bengen said. "You shouldn't be afraid of committing 65% stocks, which for some people sounds very high, but it's what you need to do if you're really going to get the maximum out of your retirement savings."

Another criticism Bengen has of target-date funds is that they sell indiscriminately at a pre-determined date, ignoring the context of market conditions.

For example, if you were approaching retirement and stock valuations were at historically high levels, you would want to reduce your exposure sooner rather than later, he said. But if a crash just happened and valuations are cheap, you probably wouldn't want to sell at the bottom.

It's an observation shared by Pam Krueger, the founder of Wealthramp, which pairs investors with fee-only financial advisors.

Krueger said that while target-date funds will get the job done for most people in the end, especially if they don't want to manage money, it's not a tool that can be exact in meeting one's needs.

"It's clunky," she told Business Insider. "It's not going to be precise."

Despite the criticisms, target-date funds aren't necessarily bad options. They get an investor to retirement age with a sizeable allocation to stocks most of the way. If a retiree then wants to be more aggressive with their approach, they can change their strategy.

For investors who do want to take an alternative route, there are a few other options.

One of them, of course, is hiring someone to manage your money for you. While that costs money every year, it may help you generate better returns that can offset that cost.

There are also what are called "lifestyle funds" from the big asset managers. They essentially keep you at a fixed allocation to stocks and bonds, and rebalance automatically.

For example, the Vanguard LifeStrategy 60/40 Fund (VSMGX) keeps you at an allocation of 60% stocks and 40% bonds. For those that want to take on more risk in stocks, there are more aggressive funds like the BlackRock 80/20 Target Allocation Fund (BAAPX).

If you enjoyed this story, be sure to follow Business Insider on Yahoo.