I’ve always said out loud that I’m not a fan of target-date funds. (And now I’ve also said it to Business Insider).
Here’s how they work: You’re placed in a fund with the year closest to when you’re expected to retire—2040, 2050, 2060—and the fund automatically decides how much of your money goes into stocks and bonds. As retirement approaches, it gradually changes that mix to become more conservative, following what’s called a glide path.
A target date fund as a retirement ‘tool’ can get the basic job done, especially for a young employee opening a first 401(k). But it was never built for precision, and precision matters much more as retirement gets closer. Think of this auto-pilot investment option as working like a basic butter knife. You’d never use it to cut into a steak because it’s not sharp.
And this isn’t some obscure little pocket in your retirement plan. Based on the latest plan data and analysis by Vanguard, more than 40 million Americans hold them in their 401(k)s, and probably don’t even remember choosing it because these funds are typically the automatic ‘default’ when employees are enrolled in workplace retirement plans. So there you are, and unless you ‘un-choose’ it, it’s part of your portfolio.
My concern now is that the investments inside these funds are changing automatically, too. Some target-date funds are starting to sneak in annuities and private investments. And this is adding higher fees, less transparency and potential restrictions on accessing your own money.
That’s what’s new, and it’s why I’m trying to get your attention.
How Target-Date Funds Took Over
Target-date mutual funds and collective investment trusts held approximately $5.3 trillion as of June 30, 2026. So today, roughly 85% of target-date assets are held inside workplace retirement plans. That’s according to Sway Research’s mid-2026 report.
Vanguard reports that 96% of the plans it administers offer target-date funds and approximately 84% of participants use them when offered.
But two funds aiming to target the same retirement year may be very different. At retirement, one major provider may hold approximately 40% in stocks, another 50% and another 55%. Some glide paths stop changing at retirement, while others continue changing for decades afterward.
The label tells you the year but doesn’t tell you how much risk you’re taking.
Now Meet the CIT
Employers have faced years of pressure to reduce 401(k) fees. That helped accelerate the movement from traditional mutual funds into collective investment trusts, or CITs, which can offer similar investments at a lower cost.
CITs now hold 55% of target-date assets, again according to Sway Research, overtaking mutual funds as the dominant vehicle. They are regulated, and employers remain responsible for selecting and monitoring them under ERISA. But CITs aren’t registered with the SEC and don’t have the same public disclosure, reporting and liquidity requirements as mutual funds.
Bloomberg recently reported that no one can say definitively how large the overall CIT market is or exactly how all its assets are allocated. That’s remarkable when trillions of dollars in retirement savings are involved.
This shift matters because CITs are expected to become a primary route for introducing annuities and private investments into target-date funds.
Annuities Are Already Moving In
More than a dozen target-date series now offer some form of guaranteed retirement income. Morningstar reports that assets in target-date funds with embedded annuities reached $44 billion in March 2026, up nearly 70% from $25 billion a year earlier.
BlackRock already offers LifePath Paycheck, Vanguard has announced lifetime-income target-date trusts, and Fidelity plans to introduce Freedom Lifetime in early 2027. Fidelity’s version will allow eligible participants to convert up to 25% of their target-date balance into guaranteed lifetime income.
An annuity may be appropriate for some retirees. But committing part of your savings to guaranteed income can involve costs, complicated terms and a loss of flexibility. That deserves an individual decision—not something that simply arrives inside a default investment.
Private Investments Are at the Gate
BlackRock and Great Gray Trust are developing a target-date solution that could allocate between 5% and 20% to private equity and private credit, depending on the participant’s age. Franklin Templeton has already introduced target-date products with smaller allocations to private real estate and private credit.
BlackRock estimates that private investments could add half a percentage point to annual returns and produce a retirement balance approximately 15% larger over 40 years. Those are projections from the company offering the product—not guaranteed results.
Private investments may provide diversification and higher returns. They can also bring higher fees, limited liquidity, infrequent valuations, difficult performance comparisons and less transparency than publicly traded stocks and bonds.
The Department of Labor has proposed a safe-harbor framework that could give plan sponsors greater legal protection when adding alternative assets to diversified retirement funds. It is only a proposed rule, but it could remove one of the largest barriers preventing employers from adopting them.
Why It Really Is a Trojan Horse
Target-date funds are the perfect delivery system because they’re already the automatic default for millions of workers. An employee could gain exposure to an annuity, private credit or private equity without ever affirmatively choosing it.
Jason Lilly, a CFA and financial adviser in the Wealthramp network, believes target-date funds can work well for younger investors because they provide diversification, rebalancing and oversight. His biggest concern is the glide path, which may move in the wrong direction for an individual client—especially near retirement, when control, liquidity and flexibility matter most.
What You Should Do
You don’t need to abandon your target-date fund tomorrow. You do need to look under the hood:
Find out whether your fund is a mutual fund or a CIT.
Check its stock-and-bond allocation, glide path and total fees.
Ask your plan rep whether an annuity, private equity or private credit has been added.
Within five to 10 years of retirement, treat any illiquid investment or annuity conversion as an individual decision—not autopilot.
Remember that a target-date fund, no matter what’s added to it, is still an investment product. It is not a retirement-income plan, and it was never built to know the difference between your situation and the next person who happens to share your birth year.
A default is only useful when you understand what it defaults you into. Right now, that default is becoming more complicated, less transparent and potentially harder to unwind—and most employees have no idea it’s happening.
P.S. Have you ever wondered what the alphabet soup of financial advisor credentials actually means? Here’s what you need to know about CFA, CPA, CFP, CIMA, and a host of other financial designations.