Target date funds have become the default investment option for most new 401(k) participants and are the primary retirement investment for millions of Americans — yet most investors who hold them have only a vague understanding of what they own. A target date fund is a single diversified fund that automatically shifts its asset allocation from growth-oriented to more conservative over time as the target retirement year approaches. This automatic glide path eliminates the need for ongoing rebalancing or allocation management, making target date funds genuinely appropriate for investors who want a complete, professionally managed, self-maintaining retirement portfolio in a single holding.
How the Glide Path Works
A target date fund labeled 2055 is designed for investors planning to retire around 2055. In 2025 — thirty years from the target date — the fund holds a high proportion of equities, typically 85-90 percent, with the remainder in bonds and other fixed income. As 2055 approaches, the fund automatically shifts toward more conservative allocation, reducing equity exposure and increasing fixed income in a predetermined glide path. At the target date, the fund typically holds 40-50 percent equities, with continued reduction in the years following retirement — the “to versus through” distinction discussed below.
The glide path is determined by the fund company’s investment philosophy and can vary significantly between providers. Vanguard’s 2055 fund holds a different equity-to-bond ratio than Fidelity’s or T. Rowe Price’s fund with the same target year. Reviewing the fund’s current allocation and the expected allocation at your target retirement date — information available in the fund’s prospectus and fact sheet — allows comparison across providers when you have a choice.
To vs. Through: An Important Design Difference
Some target date fund series are designed to reach their most conservative allocation at the target date — they glide “to” the date and stop shifting. Others continue shifting more conservatively for years after the target date — they glide “through” retirement. The “through” design reflects the view that retirement can span 30 years, during which continued equity exposure is necessary to prevent the portfolio from being depleted too early. The “to” design reflects a more conservative view that emphasizes capital preservation at the retirement date.
For most investors, the “through” design is more appropriate given modern life expectancies and the risk of outliving a too-conservative portfolio. T. Rowe Price and Vanguard use through-retirement glide paths; other providers differ. This design choice matters enough to check when selecting between options in a 401(k) plan.
The Fee Question
Target date fund fees vary enormously. Vanguard’s target date index funds charge approximately 0.10-0.15 percent annually. Fidelity Freedom Index funds charge similarly. Actively managed target date funds from some providers charge 0.50-0.75 percent or more. The higher-fee funds have not demonstrated persistent performance advantages that justify the additional cost. When a 401(k) plan offers both index-based and actively managed target date options, the lower-cost index version is almost always the better choice. When the plan’s only target date option carries a high expense ratio — above 0.30 percent — building your own three-fund portfolio from the plan’s cheaper individual index fund options may produce better net returns than the convenience of the target date fund.