Target Date Retirement Funds

TDF-401k easy button

The most common investments in many tech company 401k plans are target date retirement funds.

These funds provide employees with exposure to a diversified investment portfolio that systematically shifts out of risky asset classes (like stocks) and into less volatile investments (like bonds) as you get older and closer to retirement.

Firms like Amazon.com and Google offer employees the Vanguard Retirement Select Trust series of funds, whereas companies like Microsoft provide employees with access to the BlackRock LifePath series of funds.

Regardless of the provider, these funds have similar objectives.

The employee simply selects the fund with a “target date” closest to their projected retirement year, and voila, they have a one-stop retirement portfolio systematically managed for them.

Each series of target date retirement funds generally offer funds in 5-year increments of target retirement dates (i.e., 2030, 2035, 2040, etc.).

If you want to retire in 2039, just set your 401k contributions to be invested in the 2040 fund, and you are good to go for the next 20+ years. At least that is the idea.

Comparing Performance
Target Fund 2020 YTD 3 Year 5 Year
2030 Target Retirement 2030 Trust Select (2.3%) 6.5% 6.6%
LifePath Index 2030 (2.5%) 6.3% 6.3%
2040 Target Retirement 2040 Trust Select (4.0%) 6.6% 6.9%
LifePath Index 2040 (5.7%) 6.2% 6.7%
2050 Target Retirement 2050 Trust Select (4.9%) 6.5% 6.9%
LifePath Index 2050 (7.1%) 6.1% 6.8%

Vanguard Target Retirement Trust Select series (source: vanguard.com) Blackrock LifePath Index Funds – Institutional class (source: blackrock.com)

Stay tuned for a future post that compares the Vanguard and Blackrock offerings.

A Recovery for the AgesHow Much Wealth Should You Have by Age 45?

Share Your Thoughts

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Latest Insights