2070 TDFs Are Here for Youngest Workers

If you’re feeling on the older side today, you may want to stop reading now.

Target-date funds with the vintage of 2070 are now available, having been rolled out over the past year. Vanguard and the Principal Financial Group got things underway last year, with other asset managers steadily joining throughout 2024, according to market tracker Simfund, which, like PLANADVISER, is owned by ISS STOXX. The glide path for a 2070 fund would put a saver planning to retire at 65 years old in their late teens today.

While Principal’s Randy Welch says the 2070 vintage is part of a regular five-year cycle for Principal Asset Management, the TDF is already gaining traction in the market, most likely from savers in their late teens or early twenties.

“From a recordkeeping standpoint, we see more and more plan sponsors working with their plan advisers to make the target-date [fund] a [qualified default investment alternative],” he says. “There are workers who are in a blue collar-type industry or maybe are working themselves through college … this 2070 vintage is for them.”

Welch, a managing director and portfolio manager, says the vintage is similar in structure to Principal’s 2065 TDF, with well more than 95% of funds in equities, and the rest in high-yield fixed income. Over time, the glide path will be best suited for this working cohort that is most likely making the bulk of investments, though it is possible some older workers are seeking a more aggressive TDF, Welch notes.

As of now, Principal’s 2070s have about $172 million in assets, Welch says. That is minor compared to the $1.2 billion in its 2065 vintage and dwarfed by the $4.2 billion in the its 2060 TDFs.

“There aren’t many people that start out saving that young, but as a recordkeeper, we are aware of the many different types of business out there and their participant needs,” he says. “This offering is for some of those younger workers.”

According to Simfund, other asset managers with 2070 vintages in market already or poised to launch soon include BlackRock Inc., Capital Group’s American Funds, Fidelity Investments, Nationwide, Prudential’s PGIM Investments LLC and State Street Global Advisors.

Capital Group’s 2070 TDFs follow “a similar management approach as other long-dated vintages, with a focus on capital appreciation,” says Rich Lang, target-date fund investment managing director at Capital Group. “A new vintage will be introduced every five years to align with the evolving needs of early workforce participants.”

Lang notes that younger participants are typically contributing smaller amounts, as they are early in their careers, but they may also be taking advantage of employer matching.

“As these participants gain seniority in the workforce and their earnings increase, we expect contribution rates and asset growth to rise significantly, similar to what we’ve seen in older vintages,” he notes. “This growth trajectory typically becomes more pronounced as participants focus more on retirement planning.”

According to the Investment Company Institute, the average TDF is made up of 41% domestic equities, 27% non-U.S. equities, 25% bonds and 7% other investments such as real estate investment trusts. Assets in TDFs, as measured by ICI, have grown to $3.752 trillion as of June 2024 from $418 billion in 2010. Mutual fund TDFs, according to ICI, still hold a slight lead over collective investment trust TDFs, but CITs have steadily gained market share through the years.

Welch, of Principal, notes that, while TDFs have been great at aggregation for retirement savers, the next stage of evolution will come in decumulation, where many asset managers and insurers support a major push toward TDF vehicles that include some element of annuitization.

Just this week, Advantage Retirement Solutions LLC, or ARS, announced it is partnering with Principal on a TDF embedded with ARS’s Lifetime Income Builder, a group fixed-indexed annuity with a guaranteed withdrawal benefit. The partnership adds to others for the ARS solution, including a product from Capital Group’s American Funds and Nationwide, as well as State Street Global Advisors and Transamerica.