Retirement Planning Project

Target Date Funds (DTFs) are a relatively new innovation in the UK with the concept being imported from the US.

They are a portfolio of bond and equity funds designed to dynamically move from more risky investments to lower risk investments as the investor approaches their retirement date.

Traditional investment theory advocates moving to assets that will likely preserve capital value as investors approach retirement. TDFs do this automatically by moving from equities to bonds in the run up to retirement.

Therefore, TDFs are useful for those want to plan for a specific retirement, especially for those who need or want to have a high level of liquidity at retirement such as to purchase an annuity or to take cash from their pension pot.

TDFs are normally designed for those retiring within a 5-year time frame and there are funds with different retirement dates. For example, Vanguard has a number of funds: Target Retirement 2020 Fund, Target Retirement 2025 Fund and so on at 5-year intervals to Target Retirement 2065 Fund.

You pick the Target Retirement fund closest to your planned retirement date or within 5 years after that. So, if you intended to retire in 2026 you would select the 2025 fund.