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RETIREMENT PLAN INVESTOR

Use your plan ID (available on your account statement) to determine which employer-sponsored retirement plan website to use:

IF YOUR PLAN ID BEGINS WITH IRK, BRK, 1 OR 2

Visit americanfunds.com/retire

IF YOUR PLAN ID BEGINS WITH 34 OR 135

Visit myretirement.americanfunds.com

What Is a Target Date Fund’s Glide Path?

A glide path shows the gradual change of investment mix at the heart of any target date fund.

Target date funds are a convenient choice for investors who want professional management for their retirement assets in a single, easy-to-use investment. Participants simply choose a fund that’s closest to the year they plan to retire.

Investment Goals Change as Participants Near Retirement

A line graph showing how the percent asset mix in equities significantly decreases as an investor starts off 45 years from retirement and ends 30 years into retirement. From 45 years prior to retirement to just approaching the retirement, this is referred to as the grow investment stage. The percent asset mix in equities is the highest 45 years prior to retirement and sharply drops as the retirement phase is approached, referenced as the balanced investment stage. The final investment stage is referenced as the sustain phase and continues until 30 years after retirement. This is when the percent asset mix in equities is at the lowest point.
Example is hypothetical.
Source: © 2017 American Funds Distributors, Inc.

All target date funds have a glide path. The glide path represents the fund’s changing mix of investments, including stocks, bonds and cash equivalents, over time. When participants are further from retirement, the asset mix is more growth-oriented. As the participant’s target retirement date nears, the fund “glides down” to a more conservative mix of investments.

A Typical Glide Path is Diversified Across Stocks and Bonds

This glide path shows what equity, fixed income, and money market/short-term investments could look like over a period of 40 years before retirement, during retirement, and 30 years past retirement. Initially, 40 years before retirement, the majority investments are in equities declining over time, with a sharp drop around 10 years before retirement. Through retirement and post-retirement, equity investment continues to decline, but at a much slower rate. Fixed income has less impact in the first 30 years, but increases through retirement and post-retirement. Money-market and short-term investments start around retirement, increasing during the post-retirement years.
Example is hypothetical.
Source: © 2017 American Funds Distributors, Inc.

All target date funds reduce the amount of equity over time. However, funds that are managed “to” the target date put a higher focus on reducing volatility by becoming even more conservative as retirement approaches. This puts the responsibility of investment selection on retirees who withdraw their savings from the fund.

With life spans increasing, funds that are managed “through” the target date allow participants to continue using the same fund for decades in retirement. By maintaining a meaningful equity exposure approaching and throughout retirement, this can help participants manage the risk of outliving their savings.

An Objectives-Based Glide Path Shifts Equities Toward Income

Figure 1: A Static Approach

Figure 2: An Objectives-Based Approach

The image of a square showing almost two equal halves, growth equity and equity income. There is no change in allocation between the two over time.
 Maintaining a high percentage of growth stocks increases
 risk  in volatile markets.
 Examples are hypothetical.
 Source: © 2017 American Funds Distributors, Inc.
The image shows a rectangle with two halves, but the halves are shown with the bisecting line going from near the top left corner diagonally in a wave downwards to near the right bottom corner. The upper half shows equity income starting as a small amount and increasing over time. The bottom half shows growth equity starting as a greater amount decreasing over time.
Dividends can provide a cushion in declining markets and income in retirement.

Figure 2: An Objectives-Based Approach

Dividends can provide a cushion in declining markets and income in retirement.

Some target date funds maintain a fixed allocation of growth and income stocks within the equity portion of their portfolios (see Figure 1). This static approach misses out on potential opportunities to reduce volatility in retirement. In contrast, target date funds that focus on investor objectives slowly shift from high-growth stocks to dividend-paying stocks as the retirement date nears (see Figure 2). Because dividends can help to cushion a portfolio during down markets, this approach allows the fund to maintain a greater equity exposure in retirement without necessarily increasing volatility.

Target date funds are subject to the risks and returns of the underlying assets. Although target date funds are managed for investors on a projected retirement date time frame, the funds’ allocation approach does not guarantee that investors’ retirement goals will be met. In addition, contributions to the fund may not be adequate to reach participants’ retirement goals.

Investors would be wise to weigh these different glide path features to determine which type of target date fund strikes the appropriate balance between appreciation and stability during their careers and in retirement.

Investments are not FDIC-insured, nor are they deposits of or guaranteed by a bank or any other entity, so they may lose value.

Investors should carefully consider investment objectives, risks, charges and expenses. This and other important information is contained in the fund prospectuses and summary prospectuses, which can be obtained from a financial professional and should be read carefully before investing.

All Capital Group trademarks mentioned are owned by The Capital Group Companies, Inc., an affiliated company or fund. All other company and product names mentioned are the property of their respective companies.

Use of this website is intended for U.S. residents only.

American Funds Distributors, Inc., member FINRA.

This content, developed by Capital Group, home of American Funds, should not be used as a primary basis for investment decisions and is not intended to serve as impartial investment or fiduciary advice.