The Target-Date Fund Gap: Why Your 401(k) Default Could Cost You

If you’re saving for retirement with a workplace plan, there’s a good chance you’re in a target-date fund — and you might not even know which one. These all-in-one portfolios adjust their mix of stocks and bonds as you near retirement. Sounds simple, right? But recent research suggests your default choice could have a big impact — potentially to the tune of $400,000 or more.

Let’s unpack what’s going on behind the curtain.

👉 Curious about your own fund? Take our free 2-minute quiz and get matched with a Money Pickle advisor who can help you make sense of it.

—The Money Pickle Team

The Target-Date Fund Divide

Morningstar reviewed 37 different 2025 target-date funds to see how they performed between 2010 and the end of 2024. These funds are designed for people retiring this year, meaning investors likely started in their early 50s. The median return? About 6.6% annually — well below the S&P 500, but expected for funds reducing risk as retirement nears.

But here’s the kicker: the best fund returned an average of 9.1% annually, while the lowest returned just 5.3%. That gap, over 15 years, could equal a difference of around $465,000 for a mid-career investor, according to Morningstar's math.

What’s Driving the Difference?

It often comes down to the balance of stocks and bonds. More conservative funds have less exposure to stocks. Given that we’ve had a stretch where the market performed extremely well, that dragged down returns. For example, the lowest-performing fund in the study held only 27% in stocks, compared to a peer average of over 40%.

While past performance is never a guarantee of future results, the lesson here is less about chasing returns and more about awareness. The default fund in your 401(k) might not match your personal comfort with risk, goals, or timeline.

A Moment of Reflection

While many savers may be fine sticking with a default, others might benefit from digging deeper. Even small differences in annual returns can add up — especially over decades of saving.

🥒 Pickle Tip:

If you haven’t looked under the hood of your 401(k) in a while, consider reviewing what you’re actually invested in. Knowing your fund’s stock/bond mix can be an eye-opener.

🌟 Final Thought

Target-date funds offer simplicity — and for many, that’s a feature, not a flaw. But like any financial tool, they’re not one-size-fits-all. The most impactful thing you can do? Understand your options. And if you're unsure what you're holding (or what it means), a quick chat with an advisor in the Money Pickle network might help you chart a smarter course.

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