Target Date Funds Could Be Slowing Your Retirement Growth

If you’ve just started your career or recently joined a new company, chances are you’ve set up a retirement account and faced that long, often overwhelming list of investment options. For many, this moment leads to analysis paralysis—and the easiest choice is the preselected Target Date Fund (TDF) aligned with your expected retirement year. 

A Target Date Fund (TDF) simplifies a complex decision into something anyone can act on. And for millions of savers — especially those without access to personalized advice — they’re an excellent default. That’s why many retirement plans use TDFs as their Qualified Default Investment Alternative (QDIA): they’re diversified, automated, low-maintenance, and broadly aligned with what an average participant might need early in their career. 

And for young or overwhelmed savers, that simplicity is more than a convenience — it’s often exactly what helps them get started and stay invested. 

But here’s the nuance: a great default isn’t always the same thing as the best choice for you. TDFs are fantastic “good enough” solutions for most people for many years — but they are still built for the average investor, not the individual one. And that’s where recent research adds helpful clarity. 

What the research says about TDFs

A 2024 study — Simple Allocation Rules and Optimal Portfolio Choice Over the Lifecycle by Duarte, Fonseca, Goodman, and Parker — compares Target Date Funds with “optimal” lifetime investment strategies built using advanced economic modeling. The authors find that TDFs do a reasonable job of approximating the average young investor’s needs. That makes them excellent for plan sponsors who need a scalable, responsible solution for thousands of employees.

In other words, for overwhelmed young people and typical participants, TDFs provide a strong, evidence-backed baseline. 

But the same research also shows: 

• Investors at the same age often have very different optimal equity exposures 
• Optimal allocations for a 25-year-old might range from 30% to nearly 100% in equities, depending on income stability, total wealth, and other factors 
• Age-only approaches can lead to significant losses over time — often equivalent to 2–3% of lifetime consumption. 

So, while TDFs get the big picture right, they miss the individual details that shape long-term outcomes. This doesn’t make TDFs “bad.” It makes them baseline, not bespoke.  And once your financial life expands beyond “average,” the shortcomings become more material

What is a target date fund?

TDFs offer a curated investment mix aligned with your expected retirement year. Early in life, they lean heavily toward growth-oriented assets (US and foreign equities). As you get closer to retirement, they automatically shift toward more conservative investments such as bonds and cash equivalents. 

Their greatest strengths? 

• Automation: they rebalance without you lifting a finger 
• Diversification: broad exposure across asset classes 
• Simplicity: choose the year closest to when you expect to retire 

For young savers who feel overwhelmed or unsure, this simplicity is incredibly valuable.
That’s why TDFs work well for the majority of Americans — they solve inertia with a professionally designed starting point. 

But simplicity comes with tradeoffs. TDFs rely on one variable — your age — to determine your entire portfolio. That’s convenient, but a little too blunt once your financial life becomes more complex. 

Where TDFs fall short

Even the most aggressive Target Date Funds (like a 2070 fund) typically hold 8–12% in bonds or cash-like assets. Those allocations may be appropriate for some 22-year-olds, but unnecessarily conservative for others. 

And because TDFs don’t consider: 

• income volatility 
• stock compensation 
• housing decisions 
• outside savings 
• career risk 
• wealth level 
• family structure 

They may under- or over-allocate your portfolio compared to what’s truly optimal for you. That’s the heart of the research insight: age-only glidepaths get you in the ballpark but miss the section you really want to be sitting in. 

They’re excellent until personalization actually matters — and that inflection point usually happens sooner for high earners, executives, and anyone accumulating assets outside a single retirement plan. 

So, should you use a target date fund?

If you’re new to investing or overwhelmed, a TDF is a fantastic start. It’s diversified, disciplined, and far better than guessing your allocations. 

And for many investors — sometimes for decades — a TDF remains the right, low-stress choice. 

It’s also worth acknowledging that for the vast majority of 401(k) plan participants — especially those without access to advice — a Target Date Fund is absolutely appropriate. It protects savers from inertia and poor decision-making, and it’s a responsible default. The arguments in this article apply more directly to people whose financial lives are expanding faster than average: high earners, people with stock compensation, or those working with a Personal CFO. 

If your financial life has grown more complex, you may benefit from more personalization. The research is clear: TDFs, while excellent defaults, aren’t optimized for people with: 

• higher incomes 
• RSUs or stock compensation 
• variable or entrepreneurial income 
• multiple savings buckets 
• significant outside assets 
• growing retirement balances 
• unique risk tolerances 

This is where a Personal CFO can help — connecting your 401(k) allocation to the rest of your financial world, optimizing not just what you own but where you own it. 

If you want to be more intentional, a few small adjustments can create meaningful long-term gains. Balancing US and foreign equities, shifting conservative assets to taxable accounts, or setting up a simple rebalancing system can move you much closer to “optimal.” 

The bottom line

Target Date Funds deserve their popularity. They make investing accessible, automated, and responsible, which is precisely why many 401(k) plans use them.  The message isn’t that Target Date Funds are flawed — it’s that once your financial life expands beyond the average plan participant, your strategy should expand with it. 

As your income, savings, and financial responsibilities grow, you deserve more than a one-size-fits-all solution. Research shows that personalized portfolio construction may materially improve long-term outcomes, sometimes by the equivalent of 2–3% of lifetime consumption. 

A few thoughtful decisions today — whether it’s balancing your equity exposure, understanding asset location, or working with an advisor — can help turn your retirement account into a true engine of growth.

References: Duarte, V., Fonseca, J., Goodman, A., & Parker, J. (2024). Simple Allocation Rules and Optimal Portfolio Choice Over the Lifecycle. University of Illinois, Vanguard, and MIT/NBER.

About the Author: Sam Murphy, CFP®, is a Lead Advisor at Brighton Jones. He helps high-income professionals and families design tax-efficient investment strategies and retirement plans aligned with their values and long-term goals.

This content is for informational and educational purposes only and should not be construed as individualized advice or a recommendation for any specific product, strategy, or course of action. Brighton Jones, its affiliates, and employees do not provide personalized investment, financial, tax, or legal advice through this communication. This material is not intended to, and does not, create a fiduciary relationship under ERISA or any other applicable law. For individualized advice tailored to your specific circumstances, please consult with your adviser.