Target-Date Funds and Glide Paths: How Your Retirement Fund Shifts Over Time

Target-Date Funds Hold $3.5 Trillion in U.S. Retirement Assets — and Most Investors Don't Know What's Inside

Target-date funds (TDFs) have become the dominant default investment in American 401(k) plans. The Pension Protection Act of 2006 designated them as Qualified Default Investment Alternatives (QDIAs), and by 2024 they held approximately $3.5 trillion in U.S. retirement assets. The average participant who never selects their own investments ends up in a target-date fund almost automatically. Yet a 2023 Vanguard survey found that 63% of TDF investors could not accurately describe how the fund changes over time. The glide path — the mechanism by which TDFs shift allocation — is the most important feature investors never examine.

The Mechanics of a Glide Path

A target-date fund's glide path is its predetermined schedule for shifting asset allocation from aggressive (equity-heavy) to conservative (bond-heavy) as the target retirement date approaches. The rationale is straightforward: young investors have decades to recover from market losses and should maximize equity exposure; investors near retirement cannot afford a severe market decline in the years before they need to draw down assets.

A typical glide path for a 2055 target-date fund (intended for someone retiring around 2055) might hold:

• Age 25 (30 years out): 90% equities, 10% bonds
• Age 45 (10 years out): 75% equities, 25% bonds
• Age 55 (at retirement): 50–60% equities, 40–50% bonds
• Age 75 (20 years into retirement): 30–40% equities, 60–70% bonds

The equity reduction happens gradually — typically 1–2 percentage points per year — though the rate of change accelerates as retirement approaches in most fund designs.

"To" vs "Through" Glide Paths: A Critical Distinction

The most consequential design decision in target-date funds is whether the glide path ends at retirement or continues through retirement. This distinction dramatically affects risk exposure for retirees:

• "To" glide path: The fund reaches its most conservative allocation at the target retirement date and remains static thereafter. Designed for investors who will transfer the balance to other investments or an annuity at retirement. Maximum fixed-income weight reached at age 65.
• "Through" glide path: The fund continues to reduce equity exposure for 10–30 years after the target retirement date. Designed for investors who will remain invested through a 20–30 year retirement, managing longevity risk. More equity exposure at age 65 relative to "to" funds; continues reducing through age 80+.

Vanguard uses a "through" approach; its 2025 fund still holds approximately 50% equities at the target date, declining to 30% by age 85. T. Rowe Price also uses a through approach with one of the most equity-aggressive glide paths in the industry. Fidelity's Freedom Funds take a more moderate position between the two philosophies.

Glide Path Comparison Across Major Fund Families

Sequence of Returns Risk and Why Glide Path Design Matters

Sequence of returns risk is the danger that poor market performance in the early years of retirement permanently impairs portfolio longevity — even if long-term average returns are adequate. A retiree who withdraws 4% annually from a portfolio that drops 35% in year one faces a drastically different outcome than one who experiences the same average return with the bad year in year 10.

Target-date fund glide path design is fundamentally a response to sequence risk. A fund with 50% equities at retirement exposes retirees to meaningful equity volatility during the most vulnerable period — the years immediately preceding and following retirement (the "retirement red zone," roughly ages 55–70).

• A more aggressive through-glide path bets that longevity risk (outliving money) is more dangerous than sequence risk — and that higher long-term equity returns justify near-term volatility
• A more conservative to-glide path prioritizes capital preservation at retirement, accepting lower expected returns in exchange for reduced sequence risk
• Research by Pfau and Kitces (2014) introduced the "rising equity glide path" concept — actually increasing equity allocation in early retirement — arguing it optimally reduces sequence risk while maintaining long-term growth

Active vs Index Target-Date Funds: The Fee Difference

Research consistently shows that actively managed target-date funds do not outperform their index counterparts by enough to justify the fee differential. Morningstar's target-date fund landscape reports routinely show index fund families outperforming active peers over 10-year periods, primarily because lower fees compound favorably over decades.

When Target-Date Funds Are Not the Right Choice

Target-date funds are elegantly simple — but simplicity has limitations. They are poorly suited when:

• You have multiple retirement accounts and need to consider the entire portfolio's allocation, not just one account's
• You have a pension, Social Security, or annuity providing guaranteed income that would warrant more equity risk in your invested portfolio
• You have significant taxable account assets where tax-location strategy across account types matters
• Your risk tolerance differs meaningfully from the fund's age-based assumption

For investors with simple situations — one primary retirement account, no pension, standard risk tolerance — index-based target-date funds from low-cost providers represent a defensible and genuinely excellent default. The key is choosing the index version over the active version.

This article is for informational purposes only and does not constitute financial advice.