On September 28, 2021, Vanguard announced the launch of Vanguard Target Retirement Income and Growth Trusts as an add-on option for each of the Vanguard Target Retirement Trust programs, giving plan participants the choice of pursuing a different asset allocation in retirement to potentially fund higher spending goals.1
While Vanguard's existing industry-leading Target Retirement programs2 meet the accumulation and spending needs for the vast majority of plan participants, there is no one-size-fits-all solution, especially when it comes to the decumulation phase of their investment lives. Our research indicates that adding this new option will help meet the retirement needs of a wider spectrum of participants.
How the new strategy complements the current glide path
The current glide path of our Target Retirement programs gradually decreases the portfolio's equity allocation to 30% by age 72, when the assets transition to the existing Vanguard Target Retirement Income Trust. That allocation is well suited for those seeking a relatively stable inflation-adjusted income to cover basic living expenses.
But what if your plan has a subset of participants who might not fit the criteria above and want more than just to maintain their current lifestyle? These could be individuals who have a high net worth or can rely on other sources of income during retirement (pensions, annuities, etc.). They may have higher discretionary spending goals in retirement and the financial means and temperament to withstand periods of volatility in the equity markets.
The new Target Retirement Income and Growth Trust, with its higher 50% equity allocation, can serve this set of participants well. Those who are already invested in the Target Retirement Trusts and have the new trust as an option will be given the choice as they approach age 65 to opt in to the new strategy, which will freeze their equity allocation at 50%. (A short questionnaire provided by Vanguard can help participants decide if this is an appropriate option.) If participants do nothing, or choose not to opt in, they will continue on the current glide path, eventually transitioning to the existing strategy with its 30% equity around age 72. The two Target Retirement strategies are identical in their expense ratio, underlying funds, and management approach; the only divergence is the asset allocation after age 65.
Source: Vanguard illustration.
The new strategy is just part of Vanguard's multifaceted retirement income approach
The addition of the new investment strategy rounds out our self-directed retirement income offer. When combined with our spending services and participant guidance tools, the two Target Retirement strategies provide a straightforward and flexible alternative to annuities. And for those who want more guidance, Vanguard offers a wide array of advice solutions for retirement income.
Vanguard's multifaceted institutional retirement income offer provides customization to help participants achieve a broad range of financial goals while helping employers attract and retain talent. Greater retention can also translate to higher assets, which can provide scale and lower costs.
Is the new trust right for your plan?
The more participants you have who fall in the middle or to the right on any of the bars below, the more sense it makes to add the new strategy to your plan lineup. In other words, the more diverse your participant population, the better it is to include Vanguard Target Retirement Income and Growth Trust as an option to cover a broader range of participant retirement goals.
The new strategy can add value for your plan and participants, providing a greater degree of customization that can help meet the needs of a larger proportion of your employees and may better fulfill plan sponsors' fiduciary responsibilities–all at no additional cost to participants.
1 The new option is currently available only as a commingled investment trust, not as a 1940 Act mutual fund.
2 Vanguard is the largest target-date fund manager in the industry, according to Morningstar data as of June 30, 2021.
Notes:
- All investing is subject to risk, including the possible loss of the money you invest. 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.
- Investments in Target Retirement Trusts are subject to the risks of their underlying funds. The year in the trust name refers to the approximate year (the target date) when an investor in the trust would retire and leave the workforce. The fund/trust will gradually shift its emphasis from more aggressive investments to more conservative ones based on its target date. The Income Trust and Income and Growth Trust have fixed investment allocations and are designed for investors who are already retired. An investment in a Target Retirement Trust is not guaranteed at any time, including on or after the target date.
- The Vanguard collective trusts are not mutual funds. They are collective trusts available only to tax-qualified plans and their eligible participants. The collective trust mandates are managed by Vanguard Fiduciary Trust Company, a wholly owned subsidiary of The Vanguard Group, Inc. Investment objectives, risks, charges, expenses, and other important information should be considered carefully before investing.
- Advice services are provided by Vanguard Advisers, Inc., a registered investment advisor, or by Vanguard National Trust Company, a federally chartered, limited-purpose trust company.