Do you plan to retire in 2055? For some reason, that particular year strikes me as the distant future. It’s only 45 years from now — a year today’s 20-year-olds will be checking out of the cubicle and checking into active adult communities. Perhaps it’s because it’s one century after the year Dr. Brown had the idea for the flux capacitor and Marty McFly encountered his mom and dad as teenagers, back in time.
Vanguard is catering directly to teenagers and recent former teenagers with a new target date fund with 2055 as the target year. Target date funds are designed for investors who want a simple way to have a portfolio with age-appropriate risk exposure that changes over time as the retirement date approaches. We’ve explored the drawbacks and benefits of this hands-off approach to asset allocation and portfolio management, and if it means anything, I do not have use a target date retirement fund for myself.
The Vanguard Target Retirement 2055 Fund launched yesterday with a low expense ratio of 0.19% with 90% of the portfolio in stocks and 10% in bonds. You’ll also need a minimum of $3,000 to begin investing in this fund. Other brokerages have yet to catch up with Vanguard. Fidelity’s farthest-looking target date fund is calibrated for a retirement year of 2050. T. Rowe Price does offer a 2055 fund with a similar current allocation as the Vanguard fund but with a significantly higher expense ratio of of 0.79%.
It’s going to be difficult for Vanguard to market this investment to its intended audience. These probably work best in 401(k)s that new employees enroll in automatically. With a typical life of working until the age of 65, today’s 20-year-olds are either not thinking that far into the future or are wary of the stock market given its recent recession and volatility.