Target-date funds are single portfolios that hold a mix of stock and bond index funds and shift that mix as the named retirement year approaches. In Vanguard's series, the largest in the market with a 38% share of target-date assets, the mix is 90% stocks at age 25, 50% at age 65 and 30% at the landing point seven years after the target date [2]. The average expense ratio of a Vanguard Target Retirement fund is 0.08%, against an industry average of 0.41% as of December 31, 2025 [1]. Nearly all Vanguard-administered 401(k) plans (96%) offer them, 69% of participants hold a professionally managed allocation, and 61% of plans enroll workers automatically, usually into a target-date fund [3]. This article explains what is inside these funds, what they cost and how the allocation changes with age.
What is inside a target-date fund
A target-date fund is a fund of funds. Vanguard's version is built from five index building blocks: U.S. equities including market-cap-weighted REITs, international equities, a U.S. bond block of Treasury bills plus investment-grade corporate, mortgage-backed and asset-backed bonds, hedged international bonds, and inflation-protected bonds [2]. The fund rebalances daily as needed to keep each block at its target weight, and it is index based rather than actively managed [2]. Other providers use similar blocks; some add active managers, commodities or private assets, which raises cost and complexity.
Two features distinguish one series from another. The first is whether the glide path runs "to" retirement, freezing at the target year, or "through" it, continuing to de-risk for several years after. Vanguard's runs through retirement to a landing point seven years after the target date [2]. The second is the equity level at each age, which sets both expected return and the size of losses in a bad year.
The glide path: how the mix changes with age
| Stage | Approximate age | Stocks | Bonds | Notes |
|---|---|---|---|---|
| Early career | 25 to 40 | 90% | 10% | Allocation is flat until about age 40 [2][4] |
| Mid career | 40 to 65 | 90% falling to 50% | 10% rising to 50% | Short-term TIPS enter around age 60 [4] |
| Target date | 65 | 50% | 50% | Fund continues to shift [2] |
| Landing point | 72 | 30% | 70% | Merges into the Income fund [2][4] |
The logic is human capital. A 25-year-old has decades of future earnings that behave like a bond, so the financial portfolio can carry more equity risk. By 65 those earnings are mostly spent, and a 50% stock allocation balances growth against the risk of a large loss right before withdrawals begin. Vanguard adds short-term inflation-protected securities from about age 60 to reduce volatility and protect purchasing power, and hands the portfolio to the Income strategy at 72, which it describes as the most common age to start withdrawals [4]. A retiree who prefers to keep 50% in stocks can choose the Income and Growth trust variant instead of gliding to 30% [2].
What the fees cost over a career
Fees compound in reverse. On a $100,000 balance earning 7% before costs over 30 years, a 0.08% expense ratio leaves about $744,000; the 0.41% industry average leaves about $678,000; a 1.00% fund leaves about $574,000. The difference between the cheapest and the average is $66,000 on one starting balance, with no difference in what the investor did. Vanguard's asset-weighted expense ratio across its target-date series was 0.07% at the end of 2025, and the minimum investment in the retail funds is $1,000 [1][2].
Why target-date funds dominate 401(k) plans
Vanguard's How America Saves 2026 reports that 96% of its plans offer target-date funds, 61% of plans use automatic enrollment, average participation is 86% and 69% of participants are in professionally managed allocations such as a single target-date fund [3]. Its March 2026 preview put the average participant balance at $167,970 and the median at $44,115 at the end of 2025, with 45% of participants raising their deferral rate during the year [5]. The combination of automatic enrollment and a target-date default is the main reason participation and balances have risen: the worker who does nothing still ends up diversified, rebalanced and de-risked on schedule.
- One decision. The saver picks the year closest to age 65 and the fund handles allocation, rebalancing and the shift toward bonds.
- Behavior. Fewer moving parts means fewer panic trades; the fund rebalances into stocks after a fall, which most individuals do not.
- Low cost. Index-based series such as Vanguard's charge a fraction of the fee of a typical actively managed balanced fund [1].
- Limits. The fund does not know the saver's other assets, pension, or risk tolerance. A saver with a large taxable account or a government pension may hold more or less equity than the glide path assumes.
How to judge a target-date fund in 2026
Three checks cover most of the decision. First, the expense ratio: anything well above the 0.41% industry average needs a specific justification [1]. Second, the equity level at the target date, which ranges across the industry from roughly 30% to 60%; Vanguard sits at 50% [2]. Third, the building blocks: broad index funds across U.S. stocks, international stocks and investment-grade bonds are the standard, and inflation-protected bonds near retirement are a plus [2][4]. Investors can compare the underlying index exposures using DataPorium's ETF data, and the rate backdrop, including the 3.63% effective federal funds rate in August 2026, on the economic metrics page [6].
The personal-responsibility point is simple. A target-date fund removes the excuse of complexity, but it does not remove the need to contribute. At a 7% return, $6,000 a year from age 25 to 65 grows to about $1.2 million; the fund's glide path decides how bumpy the ride is, and the contribution decides the destination.
A target-date fund automates the allocation, the rebalancing and the shift to bonds with age; the saver still controls the two things that matter most, the contribution rate and the fee.
Key takeaways
- Vanguard's glide path holds 90% stocks at age 25, 50% at 65 and 30% at the landing point seven years after the target date, using five index building blocks [2].
- Vanguard's average target-date expense ratio is 0.08% versus a 0.41% industry average; on $100,000 over 30 years that gap is worth about $66,000 [1].
- 96% of Vanguard plans offer target-date funds, 61% auto-enroll, and 69% of participants are in professionally managed allocations [3].
- Short-term TIPS enter around age 60 and the portfolio hands off to the Income fund at 72 [4].
- Average and median balances of $167,970 and $44,115 show the fund structure works only when paired with steady contributions [5].
Frequently asked questions
What is inside a target-date fund?
Typically a handful of index funds: U.S. stocks, international stocks, U.S. investment-grade bonds, international bonds and, near retirement, inflation-protected bonds. Vanguard's series uses exactly those five blocks and rebalances daily as needed [2].
How does a target-date fund change as I get older?
In Vanguard's series the stock share is 90% until about age 40, falls to 50% at age 65 and reaches 30% about seven years after the target date, after which the fund merges into the Income fund [2][4].
What do target-date funds cost?
Vanguard's average is 0.08% and its asset-weighted figure is 0.07%, against an industry average of 0.41% as of December 31, 2025 [1][2].
Are target-date funds a good default for a 401(k)?
They are the most common default: 96% of Vanguard plans offer them and 69% of participants hold a professionally managed allocation. They suit savers who want one diversified, low-cost fund, though they cannot account for assets held elsewhere [3].
Sources & References
- [1] Vanguard: Target Retirement Funds (expense ratio vs industry average, minimums)
- [2] Vanguard: Target Retirement Series specifications, 2026 (PDF)
- [3] Vanguard: How America Saves 2026
- [4] Vanguard: TDF glide path
- [5] Vanguard: Previewing How America Saves 2026
- [6] DataPorium Economic Metrics (federal funds rate)
