Asset Allocation

T. Rowe Price Target Date Funds

February 14, 2017
A flexible investment solution that offers convenience and diversification to help meet your needs before, during, and after retirement.

Key Points

  • Longevity, inflation, and market volatility pose risks to your retirement investments.
  • Target date funds offer a flexible investment solution as you approach and enter retirement.
  • T. Rowe Price offers two target date strategies: one for prioritizing growth and one to help protect against volatility.

“Most people have decades to prepare for retirement, but too many find themselves unprepared when the time finally arrives,” says Jerome Clark, co-portfolio manager of the T. Rowe Price Retirement Funds and the T. Rowe Price Target Funds. “It’s critical that you identify your objectives for retirement savings, understand the risks, and choose an investment strategy that maximizes your opportunity to meet your goals.”

Individuals face multiple risks—including longer life spans, inflation, and market risk—as they search for effective investment strategies to maintain their desired standard of living in retirement. “At the same time, people’s needs and desires come in different shapes and sizes,” says Clark. “An effective solution must be flexible enough to account for those individual preferences."


Target date funds generally are designed to adjust their investment mix automatically, reducing exposure to stocks and increasing exposure to bonds as the target retirement date approaches. Some of these funds, such as the two suites of target date funds offered by T. Rowe Price, continue to adjust the investment mix after the target date and into retirement.

The T. Rowe Price Retirement Funds seek asset growth and accumulation prior to retirement while maintaining an asset base sufficient to sustain income withdrawals during a retirement that could last 30 years or more. To address inflation and longevity risks, this investment approach uses a higher allocation to stocks than the industry average, typically ranging from a 90% allocation 30 years from retirement to about 55% at the expected retirement date. Each fund continues to adjust and reaches its most conservative planned allocation 30 years after its stated retirement year. At this point, the allocation to stocks remains fixed at 20%, with the remainder in bonds. In exchange for higher portfolio volatility resulting from greater equity exposure, investors in the Retirement Funds get relatively more exposure to the higher growth potential of equities for a longer period of time.

The T. Rowe Price Target Funds also promote asset accumulation prior to retirement, but they are designed to reduce volatility near retirement. The strategy maintains a lower equity exposure—42.5% at the expected retirement date—in favor of fixed income investments to reduce the risk of principal loss around and after the target retirement date. Like the Retirement Funds, the Target Funds continue to adjust the stock/bond mix for 30 years after the retirement date, eventually settling at 20% and 80% allocated to stocks and bonds, respectively. “This approach is designed for investors willing to accept more modest growth potential in exchange for less volatility around their retirement date,” says Clark.

Both suites offer expert allocation across a broad range of underlying stock and bond mutual funds, relying on the expertise of the T. Rowe Price Asset Allocation Committee, which includes some of the firm’s most senior investment professionals. The underlying funds are managed by experienced portfolio managers with support from T. Rowe Price’s independent global research platform. The investment mix of each fund is rebalanced regularly to help keep its long-term investment approach on course with its respective goal.


“Our approach to target date investment strategies reflects the culture of T. Rowe Price—a commitment to research and collaboration among seasoned professionals in pursuit of investment management excellence for our clients,” says Clark. The firm has been managing asset allocation portfolios since the early 1990s, when it created its targeted risk products. It introduced the Retirement Funds a decade later and added the Target Funds in 2013.

“As hard as we’ve worked to research, create, and manage our target date investment strategies, the landscape is constantly shifting, and we have to be nimble enough to keep up,” says Clark. “As new retirement challenges emerge for our clients, we will continue to look for solutions that meet their needs before, during, and after retirement.”

The principal value of the Retirement Funds and Target Funds (collectively, the “target date funds”) is not guaranteed at any time, including at or after the target date, which is the approximate year an investor plans to retire (assumed to be age 65) and likely stop making new investments in the fund. If an investor plans to retire significantly earlier or later than age 65, the funds may not be an appropriate investment even if the investor is retiring on or near the target date. The target date funds’ allocations among a broad range of underlying T. Rowe Price stock and bond funds will change over time. The Retirement Funds emphasize potential capital appreciation during the early phases of retirement asset accumulation, balance the need for appreciation with the need for income as retirement approaches, and focus on supporting an income stream over a long-term postretirement withdrawal horizon. The Target Funds emphasize asset accumulation prior to retirement, balance the need for reduced market risk and income as retirement approaches, and focus on supporting an income stream over a moderate postretirement withdrawal horizon. The target date funds are not designed for a lump-sum redemption at the target date and do not guarantee a particular level of income. The key difference between the Retirement Funds and the Target Funds is the overall allocation to equity; although they each maintain significant allocations to equities both prior to and after the target date, the Retirement Funds maintain a higher equity allocation, which can result in greater volatility over shorter time horizons.

T. Rowe Price Investment Services, Inc., Distributor.