What Advisors Need to Know About Personalized Target Date Funds

Target date funds (TDFs) solved a critical problem: getting millions of Americans invested in diversified, age-appropriate portfolios without requiring them to become investment experts. Today, TDFs hold more than $4 trillion and capture roughly two-thirds of new 401(k) contributions, making them the default retirement strategy for most workers.¹

But here’s the challenge: two 45-year-olds targeting retirement in 2045 can have almost nothing in common financially. One might be saving 15% of a six-figure salary with substantial balances. Another might be saving 4% with modest income and limited savings. Putting both on the same glidepath is convenient—but it’s not precise.

The next generation of TDFs is changing that.

How Personalization Fits into TDF Design

Traditional TDFs use a single glidepath for everyone retiring in a given year — same allocation, same risk profile, regardless of individual circumstances. This approach offers simplicity and broad applicability. As the industry has evolved, some providers have developed alternative structures that attempt to account for participant-level variation in savings rates, income, and other factors. Each model involves tradeoffs that plan sponsors and advisors should evaluate against their specific workforce demographics.

Three Approaches to Personalization

1. Multi-Glidepath TDFs

Instead of one path per vintage, multi-glidepath series offer conservative, moderate, and aggressive options—typically differing by equity exposure at retirement (around 30%, 40%, or 50%).² This addresses misfit risk head-on:

• Higher savers can choose more conservative paths, prioritizing stability
• Lower savers can rationally select more aggressive paths, accepting equity risk in pursuit of adequacy
• Clear naming (like “Aggressive 2035”) improves transparency for participants and committees alike³

2. Tech-Enabled Personalization

The next layer uses recordkeeper and payroll data to create individualized allocations atop a TDF framework. Typical inputs include age, contribution rate, account balance, salary, and employer match—sometimes incorporating outside assets and risk tolerance.⁴

These solutions algorithmically blend underlying vintages to build unique allocations for each participant while keeping the experience simple: “You’re in the plan’s default.” The system adjusts as participant data changes over time.

This approach occupies a middle ground between standard TDFs and full managed accounts—more personalized than a single glidepath, still operationally scalable, and typically less expensive than human-advised alternatives.⁵

3. Custom Plan-Level Glidepaths

Large plans increasingly implement fully custom TDFs tailored to their workforce. These solutions might incorporate defined benefit pensions (which changes how much the DC plan needs to deliver),⁶ reflect employer-specific salary patterns, or extend into private markets and alternative strategies.⁷

For sponsors with the scale and governance to manage them, custom glidepaths allow for TDF design that reflects workforce-specific factors such as defined benefit plan benefits, employer-specific salary patterns, and access to private markets and alternative strategies.

How This Compares to Managed Accounts

Personalized TDFs often get compared to managed accounts. Both personalize, but they do different jobs:

• Multi-glidepath/personalized TDFs use age plus savings behavior to adjust within a TDF structure. Participant effort is minimal (choose a risk band or answer a few questions). Best fit: most participants, especially where savings vary widely.
• Managed accounts build fully customized portfolios using comprehensive financial profiles, goals, and outside assets. Participant effort is higher (data entry, ongoing engagement). Fees run 20-60 basis points above TDFs.⁸ Best fit: late-career or high-balance situations with complexity.

A growing number of plans use a “dual-lane” approach: low-cost personalized TDFs as the default for most participants, with managed accounts reserved for those who’ll benefit most from full customization.⁵

The Fiduciary Lens

Personalization adds complexity to fiduciary oversight, not simplicity. However, the core ERISA standard is unchanged: fiduciaries must act with the care, skill, prudence, and diligence that a prudent expert would use, selecting investments that serve participants’ financial interests.⁸

For personalized TDFs, that means asking:

1. Does personalization address a real need? Review contribution rate dispersion, income distribution, DB benefits, and QDIA usage. If your population is relatively homogeneous, a traditional TDF may suffice. If dispersion is wide, personalization likely adds value.
2. What drives the methodology? Understand which data points drive customization, how often portfolios update, and how the provider documents assumptions. You should be able to explain this in your committee minutes.
3. Do the costs justify the benefit? Tech-enabled personalization and managed accounts carry incremental costs beyond traditional TDFs that must deliver demonstrable value.⁹ It’s not about the lowest fee—it’s about reasonable cost for real improvement.
4. Is the participant experience clear? Personalization only helps if people land in the right place. Simple educational materials and guardrails prevent participants from inadvertently choosing misaligned paths.
5. How does this interact with other innovations? Many new TDFs combine personalization with lifetime income, blended active-passive strategies, or private markets. Each layer adds due diligence requirements around insurer strength, liquidity structures, and multi-manager governance.

What’s Next

The TDF story has always been about progressive refinement:

• Phase 1: Age-based TDFs got people invested and became the dominant QDIA
• Phase 2: Custom glidepaths began solving the “fit the workforce” problem at the plan level
• Phase 3: Personalized engines and targeted managed-account use aim to tackle the “fit the individual” problem while preserving the behavioral benefits that made TDFs successful

For plan sponsors and advisors, the question isn’t whether personalization is coming. It’s how you’ll implement it: large-plan custom solutions, scalable multi-glidepaths, data-driven engines, or a thoughtful combination.

Sources

1. Morningstar. (2025). “A Breakdown of Target-Date Fund Strategies for 2025.” Morningstar Financial Advisors. https://www.morningstar.com/financial-advisors/breakdown-target-date-fund-strategies-2025
2. Morningstar. (2025). “Construction Rules for the Morningstar Lifetime Allocation Indexes.” The index series provides each vintage across three risk-based categories—aggressive, moderate, and conservative. https://indexes.morningstar.com/api/docs/688103747e8f6b68c5fece14
3. 401(k) Specialist. “Custom Target-Date Funds Need Personalization.” https://401kspecialistmag.com/custom-target-date-funds-need-personalization/
4. PLANADVISER. “Catching Up on PIMCO’s Personalized Target-Date Funds.” https://www.planadviser.com/exclusives/catching-pimcos-personalized-target-date-funds/
5. Envestnet. “401(k) Managed Accounts: A Personalized Alternative to TDFs.” https://www.envestnet.com/financial-intel/401k-managed-accounts-personalized-alternative-tdfs
6. Alliance Bernstein. “Custom Target Date Solutions.” https://www.alliancebernstein.com/us/en-us/defined-contribution/solutions/custom-target-date-solutions.html;
7. TIAA. “Custom Target Date: Evolution.” https://www.tiaa.org/public/pdf/customtargetdate-evolution.pdf
8. ERISA Section 404(a)(1)(B). “29 U.S. Code § 1104 – Fiduciary duties.” https://www.law.cornell.edu/uscode/text/29/1104
9. Kiplinger. (2025). “Are Managed 401(k) Accounts Worth the Extra Cost?” https://www.kiplinger.com/retirement/401ks/are-managed-401-k-accounts-worth-the-extra-cost