In his letter dated 15 October 1888 to George Bainton, Samuel Clemons wrote, “The difference between the almost right word & the right word is really a large matter–it’s the difference between the lightning bug and the lightning.”
There is a difference among Target-Date Funds as to whether they are designed as ‘to’ or ‘through’ types.
Target-date funds (TDF) are a powerful tool in retirement planning. They are structured to maximize the investor’s returns by a specific date. These funds offer a unique strategy: they empower you to build gains in the early years by focusing on riskier assets and then retain them by shifting towards safer, more conservative choices as the target date approaches.
TDF funds, also known as “set it and forget it” investments, are a type of diversified fund. They are named after the year the investor plans to use the assets, making them long-term investments.
For instance, a younger worker planning to retire in 2065 would choose a target date or lifecycle 2065 fund, while an older worker aiming for retirement in 2025 would opt for a 2025 fund.
Lifecycle Funds are TDFs rebalanced daily, with the overall target allocation adjusted every quarter. This gradual adjustment makes the fund more conservative over time. Once the fund reaches the target date, it transitions into a more income-focused fund, the L Income Fund, ensuring a smooth transition for the investor.
The L Income fund’s asset allocations are roughly 77% invested in the G and F Funds, and the remaining 23% are divided between the C, S, and I Funds. It can also be used by those who have already retired and need a conservative income stream.
TDFs are designed as ‘to’ or ‘through’ types. A ‘to’ fund is a target-date fund intended to build up savings ‘to’ an individual’s target retirement date. A ‘through’ fund is a variety of target-date funds designed to help investors through retirement, intending to accumulate wealth long after the retirement (target) date.
The TSP Lifecycle funds are all of the ‘to’ date variety. Each Lifecycle fund eventually attains maturity defined by its name and then morphs into the L income fund. The TSP Lifecycle funds are designed to limit volatility up to their designated dates.
Amanda Umpierrez, in Evaluating ‘To’ vs. ‘Through’ Glide Paths, interviewed Joe Martel, a target-date portfolio specialist at T. Rowe Price, who explained fund companies differentiate ‘to’ and ‘through’ glide paths based on the desired outcomes they want to deliver. A ‘to’ objective limits the volatility or variability of outcomes for the investor up to retirement, while a ‘through’ objective drives growth for participant balances for several years and then allows them to be converted into income through retirement.
Martel further explained, “Most managers of ‘to’ TDFs have the objective of limiting portfolio volatility up to retirement as the primary goal, and the income throughout retirement is more of a secondary objective.”
Managers of ‘through’ TDFs tend to primarily focus on creating income throughout retirement, and managing volatility is the second objective.
Ron Surz, also has years of research experience with Target Date Funds. “Safe or aggressive are more meaningful choices than ‘To’ or ‘Through’ when selecting a TDF” is advice from his article A More Meaningful Target-Date Fund Choice Than ‘To’ or ‘Through.’
He has a recent article explaining the details of the ‘To’ or ‘Through’ as a fiduciary choice in 5 Critiques of GAO’s Report on Target Date Funds.
