Glide Path

Two target-date funds share a 2045 target year, but one uses a "to retirement" glide path and the other a "through retirement" glide path. Comparing them at the 2045 target date, the "through" fund will generally:

1. A.Hold a higher allocation to equities, because it continues reducing risk for years after 2045Correct. A "through" glide path is still de-risking past the target date, so it is more equity-heavy at 2045.
2. B.Hold a lower allocation to equities, because its glide path extends over a longer periodA longer glide path means the de-risking is not finished at the target date, leaving more equity, not less.
3. C.Hold an identical allocation, since both funds share the same target yearThe target year names the fund; it does not dictate the allocation at that date.
4. D.Convert entirely to cash and short-term instruments on the target dateNo mainstream target-date fund liquidates to cash at the target date.

Why: A "to retirement" glide path reaches its most conservative allocation at the target date and holds it constant thereafter. A "through retirement" glide path continues reducing equity for years past the target date, and therefore still carries a higher equity weight at the target date itself. The "through" design accepts more market risk at retirement in exchange for greater longevity protection over a long withdrawal period.

Ferdinand Achterberg, age 30, is invested in the Marchetti 2060 Target Retirement Fund, while a 62-year-old colleague holds the Marchetti 2030 fund from the same family. The two funds share a manager and an investment process but hold very different mixes of stocks and bonds. The schedule that produces that difference is the fund family's:

1. A.Glide pathCorrect. The glide path is the scheduled shift from equities toward fixed income as the target date nears.
2. B.Expense ratio waiver scheduleFee waivers affect cost, not the stock and bond mix.
3. C.Benchmark indexEach fund is measured against a blended benchmark, but the benchmark follows from the allocation rather than creating it.
4. D.Assumed interest rateThe assumed interest rate is the benchmark used to set variable annuity payout units, not a mutual fund allocation schedule.

Why: A target date fund follows a glide path: a predetermined schedule that gradually shifts the allocation away from equities and toward fixed income and cash as the target year approaches. The 2060 fund sits at the equity-heavy end of the path; the 2030 fund is far along it. Representatives should know whether a family's glide path is a "to retirement" design, which reaches its most conservative mix at the target date, or a "through retirement" design, which keeps de-risking for years afterward, because the equity exposure at the target date can differ substantially between families with the same target year.

Two 2050 target-date funds sit side by side on a retirement plan menu. The Brackenridge 2050 Fund reaches its most conservative allocation exactly AT 2050 and holds it steady from then on. The Cotgrave 2050 Fund continues cutting equity for roughly twenty years AFTER 2050. For a participant who actually retires in 2050, the most important consequence is that:

1. A.The Brackenridge "to" fund holds more equity at the target date, because it stops de-risking earlierStopping earlier means it has already reached its most conservative mix. It holds LESS equity at 2050, not more.
2. B.The two funds are functionally identical, because both are designed for a participant retiring in 2050The target year is the same but the glide paths are not. Equity exposure at the target date can differ by many percentage points.
3. C.The Cotgrave "through" fund holds materially more equity at and just after 2050, offering more inflation and longevity protection but greater exposure to a badly timed early-retirement declineCorrect. A through glide path is still de-risking past the target date, so it is the more equity-heavy of the two at retirement.
4. D.The Cotgrave "through" fund guarantees that the participant will not lose money after 2050No target-date fund guarantees principal. Both remain fully exposed to market risk.

Why: A "to" glide path stops de-risking at the target date; a "through" glide path keeps de-risking for years past it and therefore still holds meaningfully more equity at and just after retirement. That extra equity is a longevity and inflation hedge over a retirement that could last decades, but it also raises exposure to a severe market decline in the first years of withdrawals, when sequence-of-returns risk is most damaging. Neither design guarantees any outcome.

Two target-date 2035 funds carry similar expenses. The Ashgate fund reaches its most conservative allocation at the 2035 target year and holds it there. The Merriden fund keeps reducing equity for roughly twenty years past 2035. Percival, 52, expects to retire in 2035 and to draw the account down over the following twenty-five years. The BEST assessment is:

1. A.The two funds are effectively interchangeable, since both are managed to the same 2035 target dateTwo funds with the same target year can hold very different equity weights at that year. The label does not settle the allocation.
2. B.Ashgate follows a to-retirement glide path and Merriden a through-retirement glide path; the through design supports a long drawdown but carries more equity risk at retirement, so the choice depends on Percival other resources and tolerance for an early declineCorrect. The glide path, not the target year, determines the allocation at and after retirement, and neither design is universally superior.
3. C.The Ashgate fund is clearly better, because reaching the conservative allocation by the target date eliminates risk at retirementIt reduces equity risk but increases the chance the portfolio does not keep pace over a twenty-five-year withdrawal period.
4. D.The Merriden fund is clearly better, because a twenty-five-year drawdown requires equity exposure throughoutMore equity helps against inflation but raises the damage a decline can do just as withdrawals begin; the trade-off must be assessed, not assumed.

Why: Ashgate follows a to-retirement glide path and Merriden a through-retirement glide path. The through design holds more equity at and beyond the target date, which helps a long drawdown keep pace with inflation but leaves the investor exposed to a larger decline exactly when he stops earning. Neither is generically correct: the right choice depends on Percival other resources, his guaranteed income, and how much of a drop he could absorb in the first years of withdrawals.