A target-date fund is designed to be the only investment you need for retirement. You pick a fund based on your expected retirement year, and the fund automatically adjusts its mix of stocks and bonds as that date approaches.
How They Work
A target-date fund with a date of 2060 is designed for someone planning to retire around 2060. Today, that fund would hold mostly stocks (for growth). As 2060 gets closer, the fund gradually shifts toward more bonds and cash (for stability).
This automatic shift is called a "glide path."
Example glide path:
- 30 years before retirement: 90% stocks, 10% bonds
- 20 years before: 80% stocks, 20% bonds
- 10 years before: 60% stocks, 40% bonds
- At retirement: 40% stocks, 60% bonds
Why They Are Popular
Simplicity. You make one choice (the target date) and the fund handles everything else: asset allocation, diversification, and rebalancing.
Common in 401(k) plans. Many employers make a target-date fund the default option in their retirement plan. If you enrolled in your 401(k) and never changed anything, you may already be in one.
Appropriate for most people. For someone who does not want to manage their own asset allocation, a target-date fund is a reasonable, low-maintenance choice.
What to Watch For
Expense ratios vary. Some target-date funds charge 0.10% to 0.15% (excellent). Others charge 0.50% to 0.75% (mediocre). Check what your plan offers.
Glide paths differ. Not all 2060 funds have the same allocation. Some are more aggressive. Some are more conservative. Compare the actual holdings.
"To" vs "Through" funds. Some funds hit their most conservative allocation at the target date ("to" retirement). Others continue adjusting after the target date ("through" retirement). Know which type you have.
One size may not fit all. A target-date fund assumes everyone retiring in the same year has the same risk tolerance and financial situation. That is not true. If your situation is unusual (very early retirement, significant other assets, specific tax situation), you may want a more customized approach.
Who Should Use Them
Target-date funds are ideal if:
- You want a simple, one-fund approach to retirement
- You do not want to manage asset allocation yourself
- You are comfortable with the fund company's glide path
- You have checked that the expense ratio is reasonable
They are less ideal if:
- You have strong opinions about asset allocation
- You want to include assets not in the fund (international, REITs, crypto)
- The only options available to you have high expense ratios
The Bottom Line
Target-date funds are not perfect, but they are better than doing nothing or making emotional allocation changes. For many people, they provide a disciplined, diversified, automatically-adjusting portfolio in a single fund.
The Progressive Trailblazer includes a Retirement Calculator to help you model different saving and investment scenarios. Educational only. Not financial advice.