Your TDF decision could impact a lifetime

September 11, 2020

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Selecting a target-date fund (TDF) for your retirement plan is one of the most important decisions you make as a plan sponsor. It's a choice that can make the difference between participants just making it to retirement, or having financial security through their retirement.

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Due to the importance and impact your target-date selection has on your plan's success, we do believe a passive TDF is a prudent option to help mitigate fiduciary risk especially when used as a QDIA. But not all passive options are equal. Fees are important to consider, and the rise of passive TDFs can be attributed to Vanguard's pioneering approach to investing and bringing costs down. However, with costs coming down across the industry, the design decisions and nuances that differentiate a TDF series can have a much greater impact on a participant's experience over the long term. That's why the first, and most important, component of a TDF to look at is the glide path, which represents the strategic allocation of risk over an investor's lifecycle.

The Vanguard Target Retirement Fund glide path is designed to help participants reach their retirement goals while balancing market, inflation, and longevity risks. Any strategy or asset class included in a target-date portfolio should exhibit favorable cost, transparency, liquidity, and substantial investment merit.

Getting participants through, not just to, retirement

Retirement is not a single goal for participants. There are countless types of investors at all different stages in their lives. Recognizing this, we enlist experts not just in portfolio construction, but participant behavior and plan design when discussing any changes to the Vanguard Target Retirement Fund glide path.

"We can see what our participants actually do with their savings at various stages in their lives. Our participant behavior experts have analyzed the actions of millions of Vanguard participants," said Vanguard Senior Investment Product Manager Brian Miller. "Their data¹ supports implementing a ‘through' retirement design strategy."

Specifically, using a projected retirement age of 65, the data shows about 70% of assets are turned over at retirement. Yet on average, investors don't start withdrawing money until around age 72.

Observed investor behaviors support a 'through' glide-path design

Charts - Observed investor behaviors

Source: Retirement distribution decisions among DC participants, Vanguard, September, 2019.

Using participant data like this helps us construct a glide path that is focused on real world and real participant scenarios. It's one element our Strategic Asset Allocation Committee considers when determining what, if any, actions Vanguard should take with the glide path. The team consists of Vanguard's most seasoned investment professionals, including the Vanguard global chief economist and the chief investment officer, and they are responsible for any changes to the glide path.

Making a difference with strategic asset allocation

Another area worth your attention when selecting an index-based TDF is if it's actually acting like an index instead of an active TDF. Some providers will employ a tactically, or dynamically, managed component to their fund. They make more frequent changes to their asset allocation in an attempt to react to market events. While these changes may provide a short-term benefit, Vanguard's research has shown that tactical asset allocation has not consistently produced excess returns over the long-term.

Long term return call out

Vanguard employs a strategic asset allocation that doesn't include tactical components. We only make changes when we strongly believe it will benefit investors over the long term. In fact, research shows that a strategic approach accounts for more than 90% of long-term return variability and that tactical moves are inconsistent over time and may not be additive to long-term results.²

Don't be fooled by short-term results

Of course, you can't talk about investing and retirement success without a conversation on performance. However, one factor to be leery of when assessing your TDF options is a provider touting the short-term results of their funds. While easy to do, focusing on a small data set over a short period of time reveals almost nothing about the fund's ability to deliver the returns necessary to achieve a successful retirement. After all, the road to retirement often takes participants decades to get to and then a few more decades to enjoy the fruits of their labor.

That's why Vanguard Target Retirement Funds and their glide path focus on the long-term financial health of investors.

Brian Miller callout

"Participants need to keep saving enough on their way to retirement, but we believe our TDFs and their investor-focused design can help our participants meet a broad array of retirement-income objectives."

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¹ Retirement distribution decisions among DC participants, Vanguard, September, 2019.
² Source: Scott, Brian J., James Balsamo, Kelly N. McShane, Christos Tasopoulos 2017. The global case for strategic asset allocation and an examination of home bias. Valley Forge, PA.: The Vanguard Group.


  • For more information about any fund, visit or call 866-499-8473 to obtain a prospectus or, if available, a summary prospectus. Investment objectives, risks, charges, expenses, and other important information are contained in the prospectus; read and consider it carefully before investing.
  • All investing is subject to risk, including the possible loss of the money you invest.
  • Diversification does not ensure a profit or protect against a loss in a declining market.
  • Past performance is not a guarantee of future returns.
  • Investments in Target Retirement Funds are subject to the risks of their underlying funds. The year in the fund name refers to the approximate year (the target date) when an investor in the fund would retire and leave the workforce. The fund will gradually shift its emphasis from more aggressive investments to more conservative ones based on its target date. An investment in a Target Retirement Fund is not guaranteed at any time, including on or after the target date.
  • Vanguard is responsible only for selecting the underlying funds and periodically rebalancing the holdings of target-date investments. The asset allocations Vanguard has selected for the Target Retirement Funds are based on our investment experience and are geared to the average investor. Regularly check the asset mix of the option you choose to ensure it is appropriate for your current situation.