Retirement plans

The Vanguard Group, Inc.

A broadly diversified portfolio

Each Target Retirement Fund invests in several low-cost Vanguard index funds to create a broadly diversified mix of stocks and bonds. The year in a Target Retirement Fund’s name is its target date, the approximate year in which an investor in the fund expects to retire and leave the workforce.

Automatic adjustments

A Target Retirement Fund will hold more stocks the further it is from its target date, seeking stocks’ higher potential growth. Stocks also have the highest risk of loss. To reduce risk as the target date approaches, Vanguard’s investment managers will gradually decrease the fund’s stock holdings and increase its bond holdings. Bonds usually have a lower risk of loss, though they also have lower potential gains.

A note about risk

Keep in mind that a Target Retirement Fund is subject to the risks of its underlying funds. Its returns are not guaranteed, and investing in one does not ensure that you will have enough income in retirement. Bond funds are subject to the risk that an issuer will fail to make payments on time, and that bond prices will decline because of rising interest rates or negative perceptions of an issuer’s ability to make payments.

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Start with your retirement year

Every Target Retirement Fund except the Income Fund has a year in its name. This is the target date, when an investor in the fund would retire and leave the workforce. The Income Fund is designed for retirees.

Consider the fund with the target date closest to the year you plan to retire. If you haven’t thought that far ahead, you can use the year in which you’ll reach full Social Security retirement age (65 to 67, depending on your date of birth).

Adjust if necessary

You don’t have to choose the fund that matches your expected retirement year. Once you review that fund’s mix of stocks and bonds, you could choose one with a later target date if you’d prefer a more aggressive investment mix. On the other hand, if you’d prefer a more conservative mix, you could choose a fund with an earlier target date.

You’re never locked in to a particular Target Retirement Fund. In fact, if you invest in one, we encourage you to check your investment mix from time to time to make sure it’s in line with your goals and tolerance for risk, especially if your planned retirement year changes.

Nothing happens

A Target Retirement Fund doesn’t do anything special on the target date, and you don’t need to do anything either. Remember, each fund is designed to take you through retirement, which could last 30 years or more.

After the target date, your Target Retirement Fund will continue to shift its emphasis from stocks to bonds. After about seven years, your portfolio’s asset allocation should match the allocation of Vanguard Target Retirement Income Fund.

The Income Fund still invests a portion of its assets in stocks. While continuing to invest in stocks does expose the Income Fund to market risk, the long-term growth potential of stocks can help your buying power keep up with inflation.

Don't forget to save

Target Retirement Funds are not guaranteed. Investing in one does not mean you’ll have enough income in retirement. If you don’t save enough, reaching your goals will be a challenge no matter how you invest.

Consider saving 12% to 15% of your pay for retirement, including any contributions your employer might make. We certainly understand that that may be a scary number. You may have plenty of things you need to spend your money on now.

If you don’t think you can save that much, consider saving what you can now and increasing your savings rate a little bit each year.