How do these differ from other target pension funds?
There are two things you need to know about the Target Retirement Lifetime Income Funds. The first is that this is a new set of funds. We’re not talking about all Vanguard pension funds launched in 2003. Completely different funds. I have no idea why Vanguard used such a similar name, but there will be significant confusion – especially since the existing target retirement funds include one called Target Retirement Income Fund. The main difference is the word ‘lifespan’ in the title.
The second point is that these funds will only be available in employer-sponsored plans such as 401(k)s and 403(b)s. That seems a little weird, so hopefully that’s a temporary thing. The reason it’s silly is that when people leave their employers for retirement (that is, the time when some immediate annuity actually makes sense), they usually roll their 401(k) or 403(b) money into an IRA to allow for more control, more investment options, and often lower costs. Now there is an option available in the 401(k), but not in the IRA? What a pain. Perhaps the reason these funds will only be a 401(k) option is because they are not actually mutual funds. They are Collective Investment Trusts (CITs). Here’s an excerpt from a future WCI post on CITs, currently scheduled for publication in March 2026:
A CIT is an alternative to mutual funds that only exists within qualified retirement plans, such as your 401(k). It’s best to just think of it as a mutual fund, but there are a few minor differences, none of which are really bad. Google shows them well:
The bottom line is that CITs are sometimes placed in 401(k)s instead of mutual funds because they are slightly cheaper. Most of these are index funds or life-cycle style balanced funds, which is generally a good thing for 401(k) participants. However, because they don’t have ticker symbols like mutual funds and stocks, CITs can be a little more difficult to research on the Internet (such as Morningstar and similar sources). More often, you will just need to obtain and review information from Human Resources at your company or the 401(k) provider to learn about the investments.
Why would they put annuities in a CIT in my 401(k)?
The plan for Vanguard is that these new target pension funds will look just like the older ones, at least until you reach age 55. After that, it will start replacing some of the assets with an immediate annuity to provide a better guaranteed income. Morningstar hypothesized that it would look like this:
The annuity portion will apparently be administered by TIAA-CREF. The idea is to ensure a more stable income in the years when you really want a stable income: during your retirement. Perhaps it will help reduce the risk of the sequence of returns a little better than the mix of stocks and bonds in the older version of the target pension funds.
More information here:
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Should You Buy the Vanguard Target Retirement Lifetime Income Funds?
Probably not. Few have done that. They are brand new. That’s reason enough for me not to buy them. Additionally, for most WCIers, life cycle funds are something they draw on out of necessity as their retirement account situation becomes more complex. It’s fine for your Roth IRA in residence. Not so great if you have a 403(b), a solo 401(k), Roth IRAs, a 457(b), a cash balance plan, and a large taxable account.
Target retirement funds are all-in-one solutions that work great if all your investments are in retirement accounts that offer these solutions. That won’t be the case for most WCIers by the time they’re 55, when this new set of target pension funds would even start to integrate annuities. I don’t think these life-cycle funds with annuities are necessarily a bad idea, but they also feel like a solution in search of a problem. I suspect that most WCIers looking to annuitize some of their retirement assets will do so directly rather than through a target retirement fund, especially since you can’t even buy these things in an IRA.
It’s good to know that these Vanguard Target Retirement Lifetime Income Funds exist, but I think you can pass on them for now.
What do you think? Are you interested in life cycle funds that include annuities? Why or why not?
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