What to Know About Target-Date Retirement Mutual Funds

A group of archers aiming at targets.|A group of archers aiming at a target.

In the U.S., 2.8 trillion retirement dollars were invested in target-date mutual funds in 2022. Research also shows that more than half of 401(k) investors choose target-date mutual funds. So, what makes these funds so popular? Here’s what you need to know about investing in these popular funds. 

What Exactly is a Target-Date Mutual Fund?

A target-date mutual fund (or TDF) is a type of retirement fund that holds a mix of investments that gradually change as the investor approaches their date of retirement. You might also think of a target-date mutual fund as a fund comprised of funds, meaning your target-date mutual fund is made up of other mutual funds or ETFs. These are selected by portfolio managers who manage risk and returns based on the date you’re planning to retire. They automatically choose investments for your portfolio based on when you’re planning to retire, rebalancing with time so that investments become less risky the closer you get to retirement. The idea is to adjust the funds to earn the most in the early years while minimizing losses toward retirement years.

How Does a Target-Date Mutual Fund Work?

Many people invest in a target-date mutual fund through their employer-sponsored retirement account. When you enroll in a 401(k), for example, your plan administrator will ask you to choose an investment fund. One of those options is usually a target-date fund. These are divided into five-year increments, and you’ll select the one closest to the year you expect to retire. 

Once you’re enrolled, you don’t have to change the way your money is invested as you move toward retirement—the fund will do that for you. Future contributions made by you and your employer will be invested in this fund. 

In the beginning, your funds will be invested in a greater proportion of investments geared toward growth, such as stocks. As the fund approaches maturity (your retirement date), it will gradually shift contributions toward investments that aim to preserve your money rather than grow it. These may include cash-equivalent investments like bonds or Treasuries. 

Pros and Cons of Target-Date Mutual Funds

When you’re deciding whether or not to invest your retirement funds in target-date mutual funds, consider the pros and cons. 


  • Simple. You can choose one fund, and the investment will take care of itself. Hands-off investors might like this.  
  • Many options. You can examine different target date mutual funds at different companies to see if there’s one you like better than another.
  • Diversifies investments. Choosing a target date mutual fund means you’re investing in a wide variety of funds. 
  • Optimizes portfolio. A target-date mutual fund maximizes earnings in the early years while minimizing risk and loss in the years leading up to retirement. 
  • Automatically rebalances funds. The investments in the fund are rebalanced (or changed) as it nears maturity. You don’t have to actively manage the investments in your portfolio. 


  • Less control. When you pick a target-date mutual fund, it’s a “set it and forget it” type of investment. The fund managers make all of the decisions about what investments to make.
  • No guaranteed returns. There’s no way to guarantee your fund will make money, even when it’s optimized for your age and retirement year. Arguably, that’s an inherent risk of investing. 
  • Fees. With every investment, be sure to look at the fees charged by the fund manager, as they can take a large chunk out of your earnings. 

How Do I Invest in a Target-Date Mutual Fund? 

If you think a target-date mutual fund may work for your retirement, there are some easy ways to start. 

  • Through your employer-sponsored retirement account. If you have a retirement plan already set up for you, take a look at the quarterly statements (or your online account) to see where your money is being invested. You can change according to your plan guidelines.
  • Open a new retirement account. You can find a brokerage you like anywhere on the web. There are also a lot of physical locations for brokerages throughout the country. To open an account, select the target date mutual fund that matches your goals. 

Examples of Target-Date Mutual Funds

Need some ideas of where you can get a target-date mutual fund? Morningstar Inc., an investment research and advisory firm, awarded these target-date mutual funds with their gold rating in 2023. 

  • American Funds Target Date Retirement
  • T. Rowe Price Retirement
  • T. Rowe Price Retirement Blend
  • BlackRock Lifepath Index
  • Pimco RealPath Blend

Morningstar also noted which target date mutual funds are the most popular

  • Vanguard Target Retirement
  • State Street Target Retirement

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