Last Updated on January 11, 2023 by pf team
Vanguard target retirement funds offer a way to put your retirement savings on autopilot.
With Vanguard retirement funds, you’ll get a diversified portfolio while also enjoying solid returns with balanced risk.
Low management fees are icing on the cake. Expense ratios measure in at 81% less than the average for competing funds.
What are Vanguard’s target-date retirement funds?
Imagine a mutual fund that owned other mutual funds, bond funds, and index funds. Then imagine that the fund automatically rebalanced over time, matching investment risk to your stage in life.
Vanguard’s target-date retirement funds customize investments to match the retirement target date of people within an age group.
When retirement is still decades away, expect more aggressive investments in stock funds and index funds.
As you near your target date for retirement, your portfolio automatically rebalances, trading higher returns for increased safety.
How do Vanguard target retirement funds work?
In the not-too-distant past, you had to manage investment risk on your own. Some investors worked with an advisor to manage risks while also maximizing returns.
Vanguard target-date retirement funds automate the process of investing in appropriate ways based on your age and how close you are to retirement.
In the early years of a target-date fund, expect a heavier mix of stocks.
However, we all know markets can go down as well, so it’s often important to reduce exposure to stocks when nearing retirement.
Vanguard’s target retirement funds follow what’s called a glide path, gradually changing the mix of investments. In later years of the fund, expect a heavier mix of bonds.
This structure offers income in later years with an eye toward safety and keeping the gains you’ve earned over the decades.
Although Vanguard isn’t the only game in town when it comes to target retirement funds, Vanguard has some of the lowest fees you’ll find.
When compared to the average management costs for similar funds, you can expect to save about 80%.
Over time, the savings can add up dramatically, helping your account to grow faster.
Vanguard target-date balanced funds asset allocation
In the table below, you can see the mix of assets for each fund. Note that funds with the nearest target dates have a higher mix of bonds.
Over time, expect all of Vanguard’s target-date funds to reach a similar mix.
|Target date||Ticker||Stock %||Bond %||Expense ratio|
Vanguard’s target retirement funds with dates that are further out lean heavily toward stocks.
The mix of stocks to bonds is about 90% to 10%. Small amounts, typically under 0.5%, may also be kept in cash.
Vanguard target retirement funds list
There’s a target retirement fund for every age group of future retirees.
The investment needs of someone in their 20s differs from those of someone in their 40s or 50s.
Each fund in the list has a minimum investment amount of only $1,000, which makes getting started accessible for most households.
Vanguard target retirement 2020 (VTWNX)
With net assets of over $33 billion, Vanguard’s target retirement 2020 fund is built for those who are retiring within the next year or so.
The fund reaches a near 50-50 mix of stocks and bonds by investing in 5 other funds.
Over 30% of the fund invests in VTSMX, Vanguard’s total stock market index fund, which tracks the entire US stock market.
Another 20% of the fund’s assets focus on VGTSX, which tracks stocks outside the US.
In a growing global economy, it’s important to have exposure to both developed and emerging international markets.
The balance of Vanguard’s target retirement 2020 fund invests in bond funds.
In total nearly 50% of the fund’s assets focus on bonds, the largest percentage of which (29%) goes into one of Vanguard’s total market bond funds.
Another 12.5% goes toward international bonds while close to 7% is invested in short-term US Treasury bonds.
All the investments within Vanguard’s target retirement 2020 fund follow an index, which helps keep the expense ratio low at just 0.13%
Vanguard target retirement 2025 (VTTVX)
For those close to retirement but who may have another 5 years or so left on the clock, Vanguard’s target retirement 2025 fund tips the scales in favor of higher returns.
Rather than a 50-50 mix of stocks and bonds, you’ll own about 61% in stocks while the balance is invested in bonds to help preserve capital.
In total, the Vanguard target retirement 2025 fund has $45 billion in assets under management, with the largest allocation given to VTSMX, which tracks the entire US stock market.
The second largest holding, Vanguard’s VTBIX Total Bond Market II Index Fund, tracks the broad bond market and pays a 2.60% annual yield.
In total, investors in Vanguard’s target retirement 2025 own 4 funds, giving exposure to both US and international markets.
International stocks make up 24% of assets while international bonds make up just over 11% of assets.
A low expense ratio of 0.13% for VTTVX compares well to an industry average of 0.44%.
Vanguard target retirement 2030 (VTHRX)
With a target retirement date more than a decade out, Vanguard’s target retirement 2030 fund bumps the mix of stocks up to nearly 69%.
The balance of the fund, about 31%, invests in both international bonds and US-market bonds, tracking indexes to keep management costs down.
10-year returns for Vanguard’s target retirement 2030 fund remain conservative when compared to a total market fund or an S&P index fund, but the fund has 2 goals.
Investors in this fund seek both growth and safety. Because the target-date is only a decade away, the bond mix — still at over 30% — tempers stronger returns from the fund’s stock holdings.
You’ll find a similar basket of funds to those held by Vanguard’s other target retirement funds. The big difference is the asset mix.
Total stock market shares make up 41% of the fund’s assets, tracking the broad US stock market.
International stocks make up another 27% of assets, while bonds make up just over 31% of assets.
Vanguard target retirement 2035 (VTTHX)
If you expect to retire around 2035, take a closer look at Vanguard’s target retirement 2035 fund.
With a bit more time to recover from short-term market swings, VTTHX invests over 75% in stocks.
Like other Vanguard target retirement funds, Vanguard’s target retirement 2035 fund follows a glide path, gradually reducing risk as you get closer to retirement.
Look to Vanguard’s target retirement funds with a shorter maturity date for a template of what future assets mixes might look like as the fund shifts to a larger mix of bonds over time.
You’ll own 4 funds when you buy Vanguard’s target retirement 2035 fund, which requires just $1,000 to get started.
The stock allocation of your investment tracks the US total stock market and the total international stock market.
The bond assets, which make up about 24% of assets, track US and international bond market indexes.
Vanguard target retirement 2040 (VFORX)
If you have 2 decades left before retirement, time is on your side. Market swoons are viewed as a buying opportunity rather than a cause for concern.
Vanguard’s target retirement 2040 fund raises the stakes by changing the asset mix to favor stocks more heavily, devoting over 83% of the portfolio to US and international stocks.
Again, Vanguard uses just 4 cost-efficient funds to realize the performance and safety goals of retirement savers.
VTSMX, Vanguard’s legendary total market fund makes up the lion’s share of the company’s target retirement 2040 fund.
At over 50% allocation, your portfolio value profits from broad market increases.
You’ll also hold more than 33% of your investment in international stocks. Bond funds make up less than 17% of the fund’s total assets.
A focused index-based approach pays off in savings for investors. You’ll pay just 0.14% as an expense ratio for this fund.
Vanguard target retirement 2045 (VTIVX)
They say time heals all wounds, and that’s especially true for broad-market investments.
With its target date more than 25 years away, Vanguard’s target retirement 2045 fund expects some market volatility but also offers time to recover.
VTIVX invests nearly 90% of the fund’s assets in stocks. Only 10% is allocated to bonds, while the fund holds a fraction of a percent in cash reserves.
You’ll own 4 funds in one, with the mix adjusting automatically over time.
Currently, Vanguard’s target retirement 2045 bets more than 54% of its assets on the long-term performance of the US broad stock market.
Another 35% goes to international stocks, including both emerging markets and developed markets.
The remaining assets target US and international bond markets, tracking indexes to keep costs low.
The expense ratio for VTIVX comes in at 0.15%, considerably lower than the average cost for competing funds at 0.46%.
Vanguard target retirement 2050 (VFIFX)
By now, you’re probably noticing a pattern. Most of Vanguard’s target retirement funds use 4 underlying funds to reach a long-term goal, adjusting the asset mix as you approach retirement.
Vanguard’s target retirement 2045 fund follows this same pattern, splitting your investment into 4 funds.
Expect long-term price appreciation to come from Vanguard’s VTSMX, the company’s total stock market index fund.
A second fund, VGTSX, tracks a total international stock index, which excludes US stocks. You couldn’t ask for a more diversified stock portfolio.
The balance of Vanguard’s target retirement 2045 fund tracks 2 bond market index funds, providing a small cushion against volatility and paying dividends that boost long-term returns.
You’ll pay just 0.15% as an expense ratio, less than a third of the average cost for similar funds.
Vanguard target retirement 2055 (VFFVX)
For investors about 30 years old and planning for retirement around 2055, Vanguard’s target retirement 2055 fund was made for you.
A $10,000 investment in the fund at inception, less than 10 years ago, would be worth over $25,000 today.
Just under 90% of the fund’s assets target stocks, enhancing long-term returns when compared to funds with a shorter target-date.
Unlike index funds that target large companies, like S&P index funds, VFFVX invests in the total US stock market. You’ll own the big names of today as well as the future success stories.
US stocks make up more than 54% of the fund’s holdings while about 36% goes to international stocks.
Bonds make up 10% of the fund’s asset mix, an amount that will increase as you get closer to retirement age.
Vanguard target retirement 2060 (VTTSX)
If you’re in your mid 20s, take a closer look at Vanguard’s target retirement 2060 fund.
You have time to recover from market dips, so the fund invests nearly 90% of its assets in stocks.
During the fund’s 8-year history since inception, investors have more than doubled their money.
Of course with its target date more than 40 years out, Vanguard’s target retirement 2060 fund leaves plenty of room for future growth.
As with Vanguard’s other target retirement funds, stock investments include both US broad market stocks as well as a healthy mix of international stocks, which make up about 36% of the fund’s total assets.
Bonds make up the balance of the fund’s assets. Expenses are low at just 0.15% for VTTSX, compared to 0.46% for similar funds.
Vanguard target retirement 2065 (VLXVX)
It’s never too early to start saving for retirement and Vanguard’s target retirement 2065 fund sets its sights on the needs of young savers.
If you’re about 20 years old and expect to retire at age 65, VLXVX gives you 45 years of growth with a glide path that reduces risk as you get older.
This newer fund has rewarded young investors with more than a 20% return since its inception just 2 years ago.
Asset allocation for Vanguard’s target retirement 2065 fund follows a similar pattern to the 2060 fund, although you can expect the funds to diverge over time, reflecting the difference in age for investors in the funds.
Like Vanguard’s other retirement funds, fees are low. You’ll pay just 0.15% while enjoying automatic portfolio rebalancing.
Other Vanguard funds to consider in the same asset class
Target-date funds have their benefits but some investors may want a different mix of assets for some or all of their portfolio.
These 3 Vanguard funds don’t offer a glide path. Instead, think of these as funds matched to your investment goals.
Vanguard’s LifeStrategy Growth Fund uses the same underlying funds used by many of Vanguard’s target-date funds.
However, the mix remains static rather than automatically adjusting.
You’ll own about 80% in stocks with the balance of the fund tracking broad market indexes for US and international bonds.
The stock mix includes VTSMX, Vanguard’s total stock market fund, as well as VGTSX which tracks the international stock market.
VASGX has rewarded investors with a 8.09% annual return since inception. Fees are low with a 0.14% expense ratio.
Minimum investment: $3,000
As its name might suggest, Vanguard’s Wellesley Income Fund is weighted towards bonds which make up nearly 60% of the fund’s holdings.
Although weighted toward bonds, the fund also invests in stocks with above average dividends.
You’ll find names like Verizon, JPMorgan, and Exxon Mobil among the fund’s top holdings.
VWINX’s 40-year history has been profitable for investors who have enjoyed nearly 10% average annual returns. As you’d expect, yields outpace the S&P average at 2.54%.
Management fees come in below the average for similar funds. You’ll pay only 0.23%.
Minimum investment: $3,000
When the term balanced fund was first coined, they might have had Vanguard’s STAR Fund in mind.
VGSTX finds what many might see as perfect equilibrium between safety and gains, investing just under 40% in bonds and just over 60% in stocks.
Vanguard uses a combination of nearly a dozen underlying funds to diversify your portfolio while still providing respectable returns.
Since inception, Vanguard’s STAR Fund has returned average annual returns of 9.44%, slightly outpacing its benchmark index, the STAR Composite Index.
As you’d expect from Vanguard, effective management is affordable. You’ll enjoy a low 0.31% expense ratio for VGSTX, 62% less than similar funds.
Minimum investment: $3,000
Vanguard target-date retirement funds FAQs
Are target retirement funds good investments?
Target-date retirement funds can be good investments because they take much of the worry out of saving for retirement.
Rather than managing your asset allocation yourself as your reach certain age targets, your asset allocation is automatically managed.
However, it’s important to choose carefully with a watchful eye toward fees and the allocation mix.
In some cases, you may earn more by managing your investments yourself but a hands-on approach can also introduce more risk.
Are target-date funds active or passive?
Target-date funds use a basket of funds to reach retirement goals based on dates.
These funds may include both actively managed funds as well as passively managed funds, like index funds.
Because both types of funds are used, management fees for target-date funds are often lower than for actively managed funds.
Is a target retirement fund an IRA?
A target retirement fund can be used in either an IRA account or a taxable investment account.
In many cases, you may even be able to use a target retirement fund within a 401K.
Traditional IRAs, 401Ks, and similar retirement funds often make a better choice investing with target-date funds because taxes on dividends or other income are deferred until withdrawal.
Are target-date funds good for 401k?
Not all 401K plans offer target-date funds but if your 401K plan provides a Target retirement fund option, this type of mutual fund helps take the guesswork out of saving for retirement.
401K plans provide a tax-advantaged way to save. Instead of paying taxes on dividends like you would in a taxable investment account, you’ll only pay taxes on the amount you withdraw.
This structure allows you to reinvest your dividends and other earnings without a tax penalty.
Are target-date funds too conservative?
Target-date funds behave differently depending on how close you are to retirement.
While retirement is still decades away, expect your fund to invest more aggressively in stocks, typically earning higher returns.
As you get closer to retirement, the fund’s investment allocations become more conservative to help you preserve your earnings.
This latter stage is where some might feel that target-date funds are too conservative, particularly when you consider management costs for some funds relative to the fund’s earnings.
How much should I invest in a target-date fund?
How much you should invest depends on your age and your retirement income goals. More than 50% of all 401k investments are now 100% invested in target-date funds.
Some retirement savers prefer to divert some of their savings to other funds or investments.
If you’re investing through a 401K or an IRA (or both) be aware of IRS contribution limits for these accounts.
Do target funds pay dividends?
Most target-date funds invest in stock funds and index funds.
Dividends from the underlying stocks or other assets pass through to the investor. Most funds pay dividends quarterly or semiannually.
Does Vanguard automatically reinvest dividends?
With vanguard target-date funds, you can choose to reinvest your dividends automatically.
You may also have the option to transfer dividends and other earnings to a settlement fund.
Do target funds automatically rebalance?
Target-date funds automatically rebalance according to the fund’s glide path.
You can think of a glide path as a gradual descent in earnings as the fund shifts from growth in the early years to a focus on income and capital preservation in later years.
What year target-date fund should I choose?
Target date funds are designed to mature when you reach full retirement age. For younger investors, expect target-date funds to adjust over time based on retirement at age 65 to 67.
However, target-date funds come in five-year increments, so you’ll want to choose a fund that matures closest when you’ll reach age 65.
In some cases, it may make sense to redirect some or all of your money to another type of fund as you get closer to retirement.
Are target-date funds tax efficient?
Because index funds play a large role in target-date funds, target retirement funds tend to be more tax-efficient than some other types of mutual funds.
Index funds require less trading, so they minimize taxes due to capital gain realization.
However, if you’re investing through a traditional IRA or a similar qualified account, like a 401k, you won’t see these tax advantages because you’ll only pay taxes on distributions from your account.
Summary on vanguard target retirement funds
Target-date funds offer an easy way to invest for retirement while also providing built-in asset allocation adjustments.
Investors who experienced the market crash of 2008 and the following bear market know that a 100% stock portfolio can be risky.
This is especially true as you get closer to retirement and don’t have as much time to rebuild.
Target retirement funds automatically adjust, shifting as much as half of your retirement savings to lower risk investments over time.
With Vanguard’s lower-than-average expense ratios, you’ll find effective management at a price that lets you put more money to work to build a secure future.