Notes: Hueler Investment Services, Inc., is a nonaffiliated third party and does not compensate Vanguard. Access to annuities is offered through the Income Solutions® platform and provided on a rollover (out-of-plan) basis. All views expressed by Hueler Investment Services, Inc., are their own. Product guarantees are subject to the claims-paying ability of the issuing company. Income Solutions® is a registered trademark of Hueler Investment Services, Inc., and used under license. United States Patent No. 7,653,560.
Financial Engines is a trademark of Financial Engines, Inc. Financial Engines Advisors LLC, a federally registered investment advisor and wholly owned subsidiary of Financial Engines, Inc., provides all advisory services. Product guarantees are subject to the claims-paying ability of the issuing company.
Source: Vanguard.
One area within this spectrum that continues to gain traction is target-date funds (TDFs) with embedded guaranteed-income features. For clients who value or are familiar with guaranteed income, such as those with DB experience, these products can feel like a natural extension of what they already know, now offered through a DC plan.
Given Vanguard’s leadership position in the target-date space, we took note of the heightened interest and sought to develop a new product suite that increases optionality to address evolving plan and participant needs while preserving the core strengths of our current offering.
Introducing Target Retirement Lifetime Income Trusts
Vanguard Target Retirement Lifetime Income Trusts are the latest example of this purposeful evolution of our offer. They answer the increasing demand of plan sponsors for a guaranteed-income option within the qualified default investment alternative (QDIA) solution that is directly linked to a trusted target-date series. The new Trusts are designed to:
- Provide a structured approach to guaranteed income while preserving the strengths of the existing Target Retirement series.
- Help participants smoothly transition from saving to spending with more flexibility, supporting the decumulation phase directly through a product solution.
- Effectively balance investment outcomes both for participants who choose to annuitize and for those who do not.
In this article, we explore how Target Retirement Lifetime Income Trusts address the growing interest in embedded guaranteed-income solutions, explain the role that these products can play in achieving sustainable income in retirement, and detail how our design—built on the foundational principles of simplicity, balance, flexibility, and trust—can help participants transition from saving to spending with confidence.
Why target-date strategies with embedded guaranteed income
They combine traditional target-date strategies with an annuity and are intended to stabilize assets as the participant approaches retirement and provide guaranteed income in retirement. Most have three components:
- A multiasset allocation, such as a TDF, to support asset growth.
- An income-funding strategy for the guaranteed-income purchase.
- An annuity for guaranteed income.
As outlined in our research, From Theory to Practice: Guaranteed Income and Hybrid Annuity Target-Date Funds, these new TDF strategies can help reduce adoption barriers and broaden access to guaranteed income within DC plans. They are professionally managed products that shift automatically from growth-oriented, multiasset allocations to income-focused allocations as participants age. For many investors, these products can deliver value by supporting more stable spending across a range of market and longevity outcomes.
TDFs with embedded guaranteed-income features have the potential to offer meaningful benefits, but successful implementation requires careful consideration of several key factors:
- Participants have varied and changing needs related to guaranteed income, and the guaranteed component may not be suitable for everyone. Personalization is important, and participants should have options regarding any irrevocable guarantee.
- Guaranteed solutions can be illiquid and complex, so plan sponsors must provide participants with extensive education and communication to improve financial understanding and support engagement.
- The guaranteed component often carries additional, and sometimes less visible, costs. Understanding the drivers of cost will be essential.
Ultimately, the decision to use TDFs with embedded guaranteed-income features will depend on participants’ personal circumstances and require balancing these trade-offs.
Key principles of Target Retirement Lifetime Income Trusts
Vanguard and TIAA: A powerful combination
A critical part of our research process focused on both the type of guaranteed income we would provide within the new series and the firm we would work with on this piece of the portfolio. After a robust search, we ultimately landed on Teachers Insurance and Annuity Association of America (TIAA) as the best fit for our design and our investors.
TIAA has a strong reputation as a retirement annuity provider, backed by more than 100 years of experience and established relationships. As a mission-driven organization, TIAA shares Vanguard’s commitment to improving retirement outcomes and aligns well with our product design principles. The TIAA Secure Income Account is consistent with our guiding principles for Target Retirement Lifetime Income Trusts and enables us to deliver a competitive product quickly and efficiently. Additionally, TIAA has the largest general account of any U.S. life insurer.2
What is the TIAA Secure Income Account3?
The TIAA Secure Income Account is a deferred fixed annuity designed for the DC market and powered by the strength and consistency of TIAA’s General Account. While participants are saving, the TIAA Secure Income Account provides them with guaranteed crediting rates that, over the long term, should be similar to core fixed income yields. It provides the option, but not the obligation, to select lifetime income through TIAA.
Participants may also accrue a TIAA Loyalty Bonus®, which can increase annuity payout rates for longer-term contributors compared with those for newer contributors.4 The TIAA Loyalty Bonus is an exclusive benefit for those who contribute regularly to the TIAA Secure Income Account and is made possible by TIAA’s sharing-the-profits approach. 5
Target Retirement Lifetime Income Trusts product overview
How the glide path works
The glide path for Target Retirement Lifetime Income Trusts begins in the accumulation phase, closely mirroring the asset allocation of our industry-leading Target Retirement series. Then, in the transition phase, at around age 55, the Trust starts allocating to the TIAA Secure Income Account, as illustrated in Figure 2. At retirement, participants can determine whether, when, and how much of their assets to convert into lifetime income. Target Retirement Lifetime Income Trusts reach a 40% equity landing point at age 72. This provides the highest value for participants who elect the optional guaranteed income while also minimizing differences in expected outcomes for participants who do not elect guaranteed income.
Participants can choose to annuitize through TIAA, or another annuity provider, up to their full balance within Target Retirement Lifetime Income Trusts, keep their funds as is, take systematic withdrawals, exchange, or roll over into another solution.
Participant education and integration
The participant online experience accompanying Target Retirement Lifetime Income Trusts, as depicted in Figure 3, will provide valuable information, tools, and resources related to the Trusts that are designed to:
- Educate participants on the features and benefits.
- Model different retirement income scenarios.
- Help participants decide if guaranteed income is best for their financial well-being.
The participant journey is thoughtfully aligned with the glide path of Target Retirement Lifetime Income Trusts for a seamless experience that supports financial well-being. We are focused on delivering the right mix of support and simplicity to help participants make informed decisions.
The journey begins with enrollment, when plan sponsors select the Trusts as the QDIA and participants receive communications highlighting the benefits of joining the plan. During accumulation, participants are defaulted into or choose an age-appropriate Trust and continue making contributions while receiving timely information about its features. At age 55, when the Trusts start allocating to the TIAA Secure Income Account, participants can use the Annuity Estimator to assess their retirement readiness.
After deciding whether, when, and how much of their assets they would like to convert to guaranteed income, retiring (or retired) participants may speak to a TIAA Lifetime Income Consultant to confirm their payment options and facilitate the transaction. Annuitization with TIAA is optional, and participants may also consider other income solutions. Those who elect the optional annuitization with TIAA will begin receiving their payments and instructions for accessing their remaining assets, which would remain in the plan within the Trusts.
TIAA handles all account servicing and inquiries regarding annuity payments. Throughout the process, participants can connect with TIAA consultants for personalized support, including answers to questions about guaranteed-income benefits, guidance on payment options and how to get started, customized retirement income illustrations, and conversations tailored to those approaching or entering retirement.
Participant considerations for embedded guaranteed income
We believe participants should ask themselves the following consideration questions when deciding on any guaranteed-income options:
- How long do they expect to live? Guaranteed-income products, such as income annuities, incorporate life expectancy into the payout, which can make their “yield” appear higher than those of pure fixed income investments.
- How concerned are they with outliving their assets? Products that provide a guaranteed-income stream for life mitigate the risk that participants will run out of money while they are still alive.
- How flexible is their financial situation? Products, such as income annuities, generally involve an irrevocable (and potentially sizable) transfer of assets.
Conclusion
Target Retirement Lifetime Income Trusts represent a thoughtful evolution of our target-date lineup while preserving the core strengths of our TDFs. This new series is meant to provide plans desiring a more direct link to guaranteed income with a product solution that reflects the collective wisdom of our clients and Vanguard and that will complement, not replace, our existing Target Retirement series.
Target Retirement Lifetime Income Trusts offer a reliable, cost-effective, and highly diversified QDIA that is designed to serve a specific subset of plans and participants: those who want a more structured, product-based approach to accessing optional guaranteed income as part of a comprehensive retirement income program.
Related Links
Sources:
1 Welcome to the Peak 65 Zone - A New Chapter in America's Retirement Landscape. Alliance for Lifetime Income, 2024. https://www.protectedincome.org/peak65/.
2 Total assets for the TIAA General Account is $350 billion as of December 31, 2024. Total TIAA assets include, in addition to the General Account, separately managed accounts, such as the Real Estate Account and TIAA Stable Value.
3 The TIAA Secure Income Account is a group annuity contract issued by Teachers Insurance and Annuity Association of America (TIAA), New York, NY. TIAA Secure Income Account interest and income benefits include guaranteed amounts plus additional amounts as may be established on a year-by-year basis by the TIAA Board of Trustees. The additional amounts, when declared, remain in effect through the “declaration year,” which begins each March 1 for accumulating annuities and January 1 for payout annuities. Any guarantees under annuities issued by TIAA are subject to TIAA’s claims-paying ability. The TIAA Secure Income Account is a guaranteed insurance contract and not an investment for federal securities law purposes. Past performance is no guarantee of future performance. Form series including but not limited to: TIAA-UQDIA-002-K, TIAA-STDFA-001-NUV and related state-specific versions. Not all contracts are available in all states or currently issued.
4 Results based on averages for retirement dates each month from January 1, 1994, to October 1, 2025, comparing “long-term contributors” versus “new contributors” to highlight the difference in initial income. The long-term contributor represents a participant who has accumulated savings in TIAA Traditional, a similar product to the TIAA Secure Income Account but with a longer track record. The new contributor represents a participant who has accumulated savings outside of TIAA Traditional. The new contributor annuitizes the same dollar amount as a long-term contributor when both participants reach retirement. The new contributor deposits their savings into TIAA Traditional the day before annuity payments begin, when both the new and long-term contributors are age 67. Both select a single life annuity with a 10-year guaranteed period. 382 individual retirement month cohorts were analyzed. The long-term contributor assumes level monthly premiums over the stated investment periods. Percentage represents the average difference in initial income over each of the time periods for a long-term contributor versus a new contributor. Past performance is no guarantee of future results.
5 Lifetime income payments from the TIAA Secure Income Account may include a TIAA Loyalty Bonus®, which is discretionary and determined annually. TIAA may share profits with TIAA Secure Income Account owners through higher initial annuity income and further increases in annuity income benefits during retirement. These additional amounts are not guaranteed beyond the period for which they were declared. Amounts annuitized above the full allocation will earn new money rates. NOTE: Converting some or all their savings to income benefits (referred to as “annuitization”) is a permanent decision. Once income benefit payments have begun, the investor is unable to change to another option.
Notes:
For more information about any fund, visit workplace.vanguard.com or call 866-499-8473 to obtain a prospectus or, if available, a summary prospectus. Investment objectives, risks, charges, expenses, and other important information are contained in the prospectus; read and consider it carefully before investing.
Investments in Target Retirement Funds and Trusts are subject to the risks of their underlying funds. The year in the fund or trust name refers to the approximate year (the target date) when an investor in the fund or trust would retire and leave the workforce. The fund/trust will gradually shift its emphasis from more aggressive investments to more conservative ones based on its target date. The Income Trust/Fund and Income and Growth Trust have fixed investment allocations and are designed for investors who are already retired. An investment in a Target Retirement Fund or Trust is not guaranteed at any time, including on or after the target date.
Vanguard is responsible only for selecting the underlying funds and periodically rebalancing the holdings of target-date investments. The asset allocations Vanguard has selected for the Target Retirement Funds are based on our investment experience and are geared to the average investor. Investors should regularly check the asset mix of the options they choose to ensure it is appropriate for their current situation.
Vanguard collective trusts are not mutual funds. They are collective trusts available only to tax-qualified plans and their eligible participants. Investment objectives, risks, charges, expenses, and other important information should be considered carefully before investing. The collective trust mandates are managed by Vanguard Fiduciary Trust Company, a wholly owned subsidiary of The Vanguard Group, Inc.
All investing is subject to risk, including the possible loss of the money you invest. There is no guarantee that any particular asset allocation or mix of funds will meet your investment objectives or provide you with a given level of income. Diversification does not ensure a profit or protect against a loss.
Any guarantees under annuities issued by TIAA are subject to TIAA's claims-paying ability.
Investments in bond portfolios are subject to interest rate, credit, and inflation risk.
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