Target-date funds are the single most impactful decision many investors make — and most people pick theirs by looking at the year and clicking confirm. That is understandable, because the funds are designed to be easy to use. But beneath the simplicity are real differences in cost, strategy, and risk that compound into significant gaps in retirement wealth over time.
What changed in 2026
- Low-cost options expanded. Index-based target-date fund series from major providers are now available in most large employer plans, with expense ratios under 0.10%.
- Glide path debate continued. Research on sequence-of-returns risk pushed some providers toward more conservative allocations approaching retirement, while others maintained more equity exposure through retirement for longevity reasons.
- Custom model portfolios emerged in some plans as an alternative to off-the-shelf target-date funds — higher customization, sometimes higher cost.
- ESG target-date funds grew as an option in many plans, with slightly varied allocations and typically higher expense ratios than conventional counterparts.
How target-date funds work
A target-date fund holds a mix of stocks, bonds, and sometimes alternatives, automatically adjusting to a more conservative allocation as you approach the target year. You pick the year closest to your expected retirement; the fund does the rest.
| Year to retirement |
Typical equity allocation (varies by fund family) |
| 30+ years out |
85–95% stocks |
| 20 years out |
75–85% stocks |
| 10 years out |
60–75% stocks |
| At retirement |
40–55% stocks |
| 10 years post-retirement |
30–45% stocks |
These are general ranges — glide paths vary meaningfully across providers.
"To" vs "through" retirement
"To" funds reach their most conservative allocation on the retirement date and hold it there. Lower equity exposure at and after retirement. More appropriate for investors who plan to spend down the account quickly.
"Through" funds continue de-risking for 10–20 years after retirement. Higher equity exposure at retirement. More appropriate for investors who expect a long retirement and want continued growth potential.
Neither is universally better. "Through" funds suit people with other income sources (pension, Social Security) who do not need to draw down heavily in the early years of retirement.
How to pick
- Look at the expense ratio first. For any two funds with similar glide paths, the lower-cost option almost always wins over a long horizon.
- Compare what is in the fund. Index-based target-date funds hold index ETFs as underlying components. Active target-date funds hold active funds — more expensive, rarely worth it.
- Understand the glide path. How aggressive is the fund at your expected retirement date? Read the fund's asset allocation at the target year and at 10 years post-target.
- Decide "to" vs "through." Consider your other retirement income sources, your likely withdrawal pace, and your longevity expectations.
- Check your plan's options. You can only choose from what your 401k or 403b offers. If your plan has a low-cost index target-date series, that is likely the best choice available.
Common mistakes
Ignoring the expense ratio. A 0.60% expense ratio versus 0.10% on a $200k balance over 25 years can represent tens of thousands of dollars in foregone wealth.
Picking the wrong year. The target year is meant to reflect your retirement date, not an aspiration. Using a 2055 fund when you retire in 2040 means you hold much more equity than intended.
Holding multiple target-date funds. Buying both a 2045 and a 2050 fund does not blend the glide paths intelligently — it creates a confusing overlap. Pick one.
Never reviewing the allocation. Target-date funds are not truly hands-off — their underlying allocation changes. Review every 5 years to confirm it still matches your actual risk tolerance.
What to skip
- Actively managed target-date funds in any plan where a lower-cost index alternative exists.
- The default enrollment fund without verifying it matches your target year — plan auto-enrollment sometimes defaults to a conservative near-term fund.
- Target-date funds outside retirement accounts — in a taxable brokerage account, their turnover and distributions create unnecessary tax drag compared to managing a simple two-fund portfolio yourself.
FAQ
Should I use a target-date fund or build my own portfolio?
Target-date funds are excellent for most investors who want a simple, diversified, automatically rebalancing solution. Building your own gives more control and potentially lower cost, but requires more engagement.
What if my plan only has expensive target-date funds?
Compare the expense ratio to building an equivalent three-fund portfolio yourself using the plan's cheapest index funds. Often you can replicate a similar allocation at lower cost with two or three index options.
Can I use a target-date fund in a Roth IRA?
Yes. Target-date funds are available in IRAs as well as 401ks. The same evaluation criteria apply.
What happens to the fund after the target year passes?
The fund continues to exist and manage the allocation — it does not close or cash out. "Through" funds continue de-risking; "to" funds hold their final allocation.
Where to go next
See Best bond funds in 2026, How to plan for retirement in 2026, and How to roll over a 401k in 2026.