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.