For many plan sponsors, offering a suite of target-date investments, such as Vanguard Target Retirement Trusts, is an easy and effective way to help participants invest for their future income needs through the plan.
With a 30% final equity allocation at age 72, the Vanguard Target Retirement glide path is constructed to help a broad range of participants meet their retirement spending needs. And for those participants whose circumstances and risk tolerance allow, the higher-equity final landing point (50%) of Vanguard Target Retirement Income and Growth Trust (TRIGT) may be more appropriate.
In this paper, we analyze how the Target Retirement Income and Growth Trust strategy may be better suited for certain participants with the ability and willingness to assume higher levels of risk for potentially higher wealth or spending in retirement. And we’ll introduce you to three personas we’ve developed—the income booster, the exceptional saver, and the aspirational spender—to help illustrate instances in which this potential for higher wealth or spending may be worth the increased risk posed by the higher-equity landing point. Using Vanguard Life-Cycle Investing Model (VLCM), we quantify the additional utility, or value, that the TRIGT option brings to each persona over the more conservative default path through a certainty fee equivalent (CFE), income shortfall, and other metrics supporting a retirement income sufficiency objective.
Notes:
- For more information about Vanguard funds, visit vanguard.com 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.
- Investments in Target Retirement Funds and Trusts are subject to the risks of their underlying funds. The year in the fund or trust name refers to the approximate year (the target date) when an investor in the fund or 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/Fund and Income and Growth Trust have fixed investment allocations and are designed for investors who are already retired. An investment in a Target Retirement Fund or Trust is not guaranteed at any time, including on or after the target date.
- Vanguard Target Retirement Trusts are not mutual funds. They are collective trusts available only to tax-qualified plans and their eligible participants. Investment objectives, risks, charges, expenses, and other important information should be considered carefully before investing. The collective trust mandates are managed by Vanguard Fiduciary Trust Company, a wholly owned subsidiary of The Vanguard Group, Inc.