If you’ve never once picked an investment in your 401(k), I can make a pretty good guess about what you own: a target-date fund.
When a Vanguard-run plan names a default investment, it’s a target-date fund about 93% of the time. And 84% of participants who are offered one use it, according to Vanguard’s How America Saves 2026 report. In the average plan, nearly two of every three contribution dollars go there.
That’s not a scandal. I’m a CPA, and I spent 10 years as a Wall Street investment advisor watching people wreck their savings by tinkering. A fund that sets a reasonable mix and shifts it as you age solves that problem for millions of people.
But here’s what nobody mentions at enrollment. Your employer chose this fund, and the fund company isn’t going to send a letter telling you it’s time to leave. Even the Securities and Exchange Commission’s guide to target-date funds points out that another fund in your plan might suit you better.
These funds held $4.8 trillion at the end of 2025, according to Morningstar’s annual target-date report. Some of that money is in exactly the right place. Some isn’t. Here are six signs yours has stopped earning its keep.
1. You’re close to the date, and you don’t know what happens next
The year in the fund’s name sounds like a finish line. It isn’t. There are two kinds of these funds, and many people have no idea which one they own.
A “to” fund stops shifting when it reaches the target year and holds that mix from then on. A “through” fund keeps moving toward bonds for years after the date on the label, according to the SEC.
For much of the ride, the “to” version tends to be the more cautious of the two.
And the gap between funds wearing the same label can be enormous. Morningstar’s 2026 review describes one series that keeps half its money in stocks at retirement and beyond. Another started out around 82% stocks and slid to just 8% by retirement. (That one shut down in 2023.)
Same promise on the label. Completely different ride.
The fix: Pull up your fund’s fact sheet or prospectus and find the glide path, the chart showing the stock-and-bond mix year by year. The SEC’s advice is simple: Know when your fund hits its most cautious mix, and decide whether that fits your plans.
If you’re within a year of the finish, add this to the list of things to do with your 401(k) the week before you retire.
2. You’re paying more than you have to
Good news first. The average target-date mutual fund charged 0.27% a year in 2025, weighted by assets, according to Morningstar. That’s about half what it cost a decade earlier. Some cost next to nothing: Vanguard’s Target Retirement funds charge 0.08%, and some Fidelity Freedom Index funds charge 0.04%.
Now the catch. An average means somebody’s paying more. And the SEC warns that a target-date fund can charge you twice: once for itself and again for the funds it holds.
Let’s run the numbers on a $400,000 balance.
At 0.08%, you’d pay $320 a year. At the 0.27% average, $1,080. Now picture a pricier fund at 0.75%, a number I’m using just to illustrate. That’s $3,000 a year, every year, whether the market’s up or down.
The gap between $320 and $3,000 is $2,680 a year. Over a 25-year retirement, that’s $67,000, before counting what that money could have earned. That’s a new car, gone, in exchange for nothing.
The fix: Look up your fund’s expense ratio on your plan’s website. If it’s high and your plan offers low-cost index funds, you have better options. And if you’re paying an advisor on top of all that, read my take on what a 1.5% advisor fee really costs.
3. You own it alongside a bunch of other funds
A target-date fund is built to be your whole account. That’s the point. A professional sets the mix and rebalances it so you don’t have to.
Yet among Vanguard’s target-date investors, roughly 1 in 4 spread their money beyond a single target-date fund. Vanguard reports that 73% keep their entire balance in just one.
Here’s why that’s a problem. Say your fund holds roughly half stocks and half bonds, and you add an S&P 500 index fund because stocks have been on a tear. Your real mix is now something nobody designed, including you.
You’re paying a manager to balance your money, then unbalancing it yourself.
The fix: Pick a lane. Either let the target-date fund do the whole job, or replace it with a simple mix of index funds you rebalance once a year. Half and half usually gets you the worst of both.
A quick nudge — when it comes to money, the best day to get smart was 20 years ago. The second-best is today. Sign up for the free Money Talks Newsletter and start now. Takes 10 seconds, costs nothing, and could change your retirement.
4. Your life doesn’t look like the average
A target-date fund knows exactly one thing about you: the year you plan to retire. It doesn’t know whether you have a pension, a spouse with a big portfolio, a paid-off house or a brokerage account somewhere else.
Those things matter. A retiree whose pension and Social Security cover the bills can afford more stock risk than one who’ll live entirely off savings. Someone retiring at 58 has a different problem than someone working until 72.
The SEC makes this point directly: Weigh your other investments and income sources, and don’t assume the date on the label is the right one for you. Someone planning to retire in 2060, the agency notes, might decide a 2050 or 2070 fund suits them better.
The fix: If you have a pension, get these decisions right before you sign.
If you’re thinking about turning part of your savings into a guaranteed paycheck, learn how to skip the commission. Then choose a fund, or a mix, that fits your whole picture.
5. You’re about to start taking money out
This is the one I care about most, because it’s where a one-fund setup can hurt you.
Saving and spending are opposite jobs. When you’re saving, a target-date fund is close to ideal. When you’re spending, you want to decide which investment to sell for each withdrawal. A single fund won’t let you. Every dollar you take out is a slice of everything it owns.
Here’s the math. Say you have $500,000, half in stocks and half in bonds. Stocks drop 30%. Your stocks are now worth $175,000 and your bonds still $250,000, for a total of $425,000.
You need $30,000 to live on this year. Take it from a single fund and about $12,350 comes out of stocks, sold near the bottom. Hold stocks and bonds separately, and you can take all $30,000 from bonds and leave your stocks alone to recover.
I was an investment advisor on Wall Street during the 1987 crash, and here’s the lesson I took away: The worst position you can be in during a crash is being forced to sell stocks to pay your bills.
To be fair, the fund will rebalance on its own schedule, and Morningstar notes that managers don’t agree on how to handle this exact risk. But “the manager will handle it” is a different plan from “I decide which bucket pays my bills.”
The fix: Before your first withdrawal, consider parking a year or two of spending money somewhere safe and boring. You can compare savings and CD rates in our Solutions Center.
If that’s more planning than you want to do alone, it’s a good time to find a financial advisor. Just ask these three questions before you hand over a dime.
6. You’re leaving the job
Retiring or changing employers is the most natural time to rethink this fund, because you’re probably about to choose all over again anyway.
Most people keep their retirement money working for retirement when they leave. Vanguard says 83% of participants who could take a distribution either left the money in the plan or moved it to an IRA or their next employer’s plan.
Here’s what many don’t realize. The target-date fund in your 401(k) may not be a mutual fund at all. More than half of target-date money, 54% at the end of 2025, sits in collective investment trusts, according to Morningstar.
These trusts usually cost less than mutual funds. But the SEC doesn’t regulate them, and they don’t show up on retail sites like Morningstar.com.
So the low-cost version you had at work may not follow you out the door. You could land in the retail version of the same series and pay more without noticing.
The fix: Before you roll anything over, compare what you pay now with what you’d pay for the replacement. And know what’s actually inside whatever you pick, especially now that Wall Street wants private equity in your 401(k).
The bottom line
A target-date fund isn’t a bad investment. For a 30-year-old who’d otherwise leave money in cash or chase hot stocks, it’s one of the best things to happen to retirement plans. Vanguard says 69% of its participants now have a professionally managed mix, up from 9% in 2005.
But it’s a starter fund, built for people who don’t want to make decisions. As retirement gets close, you can’t avoid making them.
If any of these six signs fit, it’s time to take back the wheel. That doesn’t always mean firing the fund. It does mean deciding for yourself, instead of keeping whatever your employer picked years ago.
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