The Securities Exchange Commission and Department of Labor are taking aim at target-date retirement funds. This is a fight worth watching because target-date funds are a great way to save yourself from yourself when it comes to building your retirement nest egg.

If you are new to target-date funds, the best way to think about them is as the financial version of the chicken rotisserie set-it-and-forget-it machine. These mutual funds have names like “Target Date 2010” or “Target Date 2035.”  The idea is that you invest in a fund that has a “vintage year” close to when you turn age 65.  Then, as you get closer to retirement, the company managing the fund will gradually shift its mix from stocks, to bonds, to cash – to ensure that your asset allocation is appropriate for your stage in life.

Alas, it turns out that mutual fund companies all have their own idea of what an “ideal” portfolio should look like for someone who is turning 65 in say 2010.   According to Morningstar data, the percentage of stocks in target date 2010 funds has ranged from roughly 20% all the way up to 80%. That’s entirely too much variability.

I’ve always liked the simplicity of target-date retirement funds and want to see them thrive. So what should we be rooting for Washington to do? My favorite rule of thumb comes from Vanguard’s founder, John Bogle. He says that the percent of your portfolio that should be in bonds is equivalent to your age. Another way to say this is that the maximum percent of your portfolio that should be in stocks is 100 minus your age (so if you are 60 years old, 100 minus 60 equals 40, and thus 40% is the maximum percent of your investible assets to have in stocks). Personally, I like to tweak this rule for gender. That’s because women statistically live an average of 7 years longer than men. So I like to say that if you are a male, the maximum percent of your portfolio that is in stocks is 100 minus your age… and if you are a woman, that equation shifts to 110 minus your age.

In this day and age of financial shenanigans, some oversight of target-date funds is a good thing. My fingers are crossed, however, that any guidelines that are adopted will be in line with Mr. Bogle’s sensible suggestions.