Blog : Investment | August 29, 2022

Selecting an optimal glide path for Target Retirement Funds

Roger Aliaga-Díaz, Ph.D.

Global Head of Portfolio Construction and Chief Economist, Americas

Nathan Zahm, CFA®, FSA

Head of Global Target Retirement and Goals-Based Investing Research

In this Q&A, Roger Aliaga-Díaz and Nathan Zahm talk about their strategy for developing, validating, and modifying the assumptions behind the selection of a Target Retirement Fund glide path.

How does Vanguard view the evolving role of target-date funds?

Target-date fund assets have experienced huge growth—from $8 billion at the turn of the millennium to a staggering $3.24 trillion at the end of 2021.1 That growth largely stems from the passage of the Pension Protection Act of 2006 in the United States, which allowed target-date funds to play a more dominant role in defined contribution plans and act as a qualified default investment. Today, 80% of all participants in Vanguard-administered defined contribution plans use a target-date fund. More than half of those participants use just one target-date fund as their sole retirement plan holding.2


For retirement savers, the availability of target-date funds has dramatically simplified the investment process while improving investment diversification. The managers of these all-in-one vehicles maintain the target mix through retirement, which helps free investors from the need to regularly rebalance.


What framework considerations does Vanguard use when measuring the success of a Target Retirement Fund glide path?

Vanguard has constructed several powerful tools that we use when vetting potential retirement glide paths. They include the Vanguard Capital Markets Model®, which considers a wide range of potential future market scenarios and economic conditions, and the Vanguard Life-Cycle Model, which incorporates a long list of investor characteristics such as demographics, risk tolerance profile, retirement funding needs, savings rates, expected retirement age, and guaranteed income sources such as Social Security or defined benefit pensions.


By using these models in concert, we can determine which glide path is most appropriate given investor needs and characteristics, while accounting for market uncertainty. The optimal glide path will identify the risk-return sweet spot—that point where potential risk and return align to an investor’s comfort level while, at the same time, providing sufficient assets to meet their spending goals through retirement. 


The two most relevant variables we consider when measuring glide-path success are certainty fee equivalents, a single variable that captures a glide path’s combined risk and return profile by determining the amount of annual return an investor would give up to take one glide path over another, and the probability of success, which is the likelihood that a particular glide path will meet an investor’s spending goals through retirement across the full range of economic scenarios.3 We aim for a probability of success of 70% or more of meeting retirement spending needs until at least age 95.


What are the circumstances we consider when using these simulation models to develop potential retirement glide paths?

We serve a heterogeneous population: Wages evolve through time and across demographics, health care costs and savings rates vary, and longevity factors differ. We carefully consider which population averages and characteristics will help us design a Target Retirement Fund glide path that can give savers their best chance at investment success. In general, our Target Retirement Fund investors:

  • Have a conservative risk tolerance.
  • Save at the average rate for their age cohort.
  • Want to retire at age 65.
  • Expect 75% to 80% of their ending salary annually in retirement.


Still, we constantly review and reassess these assumptions, how sensitive the optimal glide path is to changes in these assumptions, and the range of observations in the population. We partner with thought leaders throughout Vanguard to make sure we understand the behavioral attributes of the people for whom we design these portfolios. Are retirement ages shifting? (Perhaps. Some forces, such as longer, healthier lives, are driving later retirements; others, such as COVID-19, are driving earlier retirements.) Have autoescalation features in 401(k)s changed how people save? (Yes, for the better.) Have the concepts of retirement and retirement income changed? (For second careerists and retirement business launchers, yes.)


Vanguard Target Retirement Funds are a straightforward investment option, but there is rigor behind the methodology. Our research team constantly tests the model to make sure our assumptions reflect real-world conditions (be they robust market returns, inflation, or volatility), include a range of possible asset classes, and reflect the needs and wants of modern-day retirement savers. We have a responsibility to investors who rely on this glide path to help carry them through retirement. We take that very seriously.

1 Target-date fund (TDF) assets are based on data from Vanguard, Morningstar, and company public filings, as of December 31, 2021.
2 Data on TDF use in defined contribution plans is taken from How America Saves 2021.
3 See Vanguard, 2021. A Systematic Framework for Validating TDF Glide Paths


  • For more information about Vanguard funds, visit 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. Be aware that fluctuations in the financial markets and other factors may cause declines in the value of your account. There is no guarantee that any particular asset allocation or mix of funds will meet your investment objectives or provide you with a given level of income. Diversification does not ensure a profit or protect against a loss.
  • 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. The Income Fund has a fixed investment allocation and is designed for investors who are already retired.  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.