We serve a heterogeneous population: Wages evolve through time and across demographics, health care costs and savings rates vary, and longevity factors differ. We carefully consider which population averages and characteristics will help us design a Target Retirement Fund glide path that can give savers their best chance at investment success. In general, our Target Retirement Fund investors:
- Have a conservative risk tolerance.
- Save at the average rate for their age cohort.
- Want to retire at age 65.
- Expect 75% to 80% of their ending salary annually in retirement.
Still, we constantly review and reassess these assumptions, how sensitive the optimal glide path is to changes in these assumptions, and the range of observations in the population. We partner with thought leaders throughout Vanguard to make sure we understand the behavioral attributes of the people for whom we design these portfolios. Are retirement ages shifting? (Perhaps. Some forces, such as longer, healthier lives, are driving later retirements; others, such as COVID-19, are driving earlier retirements.) Have auto-escalation features in 401(k)s changed how people save? (Yes, for the better.) Have the concepts of retirement and retirement income changed? (For second careerists and retirement business launchers, yes.)
Vanguard Target Retirement Funds are a straightforward investment option, but there is rigor behind the methodology. Our research team constantly tests the model to make sure our assumptions reflect real-world conditions (be they robust market returns, inflation, or volatility), include a range of possible asset classes, and reflect the needs and wants of modern-day retirement savers. We have a responsibility to investors who rely on this glide path to help carry them through retirement. We take that very seriously.