What is a Target Date Fund with Lifetime Income?

A Target Date Fund (TDF) can now integrate the benefit of lifetime income, serving as a modern investment option that blends the simplicity of a traditional target date fund with the security of an annuity. It’s designed to help employees grow their retirement savings and convert them into guaranteed income—all within a single investment.

As lifetime income becomes a policy focus under federal retirement law, these funds are gaining traction, supported by recent legislation such as the SECURE Act of 2019 and related Department of Labor (DOL) guidance.

1. How Target Date Funds Work

A traditional TDF is an age-based investment that automatically adjusts over time. When an employee is decades from retirement, the fund invests heavily in stocks to encourage growth. As the target retirement year approaches, it gradually shifts toward bonds and other conservative investments to preserve capital [1].

This “glidepath” design simplifies the process for participants who want a diversified, professionally managed portfolio without having to rebalance or pick funds themselves.

2. Adding the Annuity Component

A Target Date Fund with lifetime income builds on that structure by incorporating the ability to secure future lifetime income through an insurance feature—the annuity. As employees invest, the fund allocates a portion of their assets to secure future lifetime income. Upon retirement, the participant can elect to begin guaranteed monthly payments that last for life [2].

This design effectively combines accumulation and decumulation within the same vehicle—helping to solve one of retirement’s hardest problems: outliving your savings.

“An annuity inside a target date fund is like building the parachute before you jump—it’s there when you need it most.” [3]

3. The Policy Shift Toward Lifetime Income

For decades, defined contribution plans (like 401(k)s) have replaced traditional pensions without offering a clear way to create predictable income. Policymakers recognized this gap and responded with the SECURE Act of 2019 and later the SECURE 2.0 Act of 2022, both of which encourage lifetime income options inside employer-sponsored plans [4].

Among the key SECURE Act provisions:

• Enhanced lifetime income disclosure requirements, helping participants visualize retirement income potential
• Portability of lifetime income investments, allowing participants to preserve annuity contracts when plans change recordkeepers
• Greater fiduciary clarity for plan sponsors, including a safe harbor for selecting insurers and guidance on documenting due diligence

These changes reflect a fundamental policy goal: making lifetime income the default, not the exception.

4. Fiduciary Implications for Plan Sponsors

From a fiduciary standpoint, offering a Target Date Fund with lifetime income introduces dual oversight responsibilities—for both the investment and insurance components.

The DOL’s 2019 Safe Harbor for Selecting an Annuity Provider remains the cornerstone for evaluating these products [5]. It directs fiduciaries to:

• Assess the financial health of the insurer
• Evaluate fees and guarantees for reasonableness
• Document the process used to make and monitor selections

Under SECURE 2.0, the DOL and Treasury continue to develop clarifying guidance and model disclosures for lifetime income options [6].

Many of these products also incorporate discretionary investment management. In those cases, the plan sponsor’s role shifts to monitoring the investment manager rather than directly selecting underlying investments [7].

Plan sponsors should also monitor updates from the DOL’s Employee Benefits Security Administration (EBSA), which has signaled that additional rulemaking on fiduciary governance and income disclosures is forthcoming [8].

In fiduciary terms, prudence isn’t perfection—it’s process. Employers that can demonstrate thoughtful, well-documented decisions are better protected.

5. Benefits of Target Date Funds with Lifetime Income

• Built-in diversification and age-based management: The TDF component automatically adjusts the asset mix over time
• Predictable income for life: The annuity feature helps retirees create a sustainable income stream
• Behavioral simplicity: Embedding annuitization helps overcome participants’ hesitation to purchase lifetime income products on their own
• Alignment with federal policy: SECURE 2.0 encourages lifetime income features, giving fiduciaries a clearer framework to operate within [4][6]

6. Potential Drawbacks and Considerations

While promising, TDFs with lifetime income aren’t perfect:

• Higher fees in some products due to insurance costs and income guarantees (though not in all cases)
• Utilization challenges—uptake depends on participant understanding
• Portability considerations if recordkeepers or plan sponsors change
• Product complexity, which can make due diligence more challenging

These challenges are manageable within a sound fiduciary process—especially one aligned with ERISA best practices and evolving DOL expectations.

7. The Road Ahead

As the DOL and Treasury continue implementing SECURE 2.0 provisions through 2025, the landscape for lifetime income in defined contribution plans is rapidly maturing. Major investment providers—including BlackRock, TIAA, and Fidelity—have already launched or expanded TDFs with lifetime income offerings [2][9].

For employers, adopting a TDF with lifetime income can demonstrate proactive fiduciary management—balancing plan innovation with participant protection. For employees, it offers a path toward financial security that doesn’t end at retirement.

As one industry executive put it: “Retirement success isn’t just about reaching a number—it’s about knowing the paycheck won’t stop.”

References

[1] Vanguard. (2024). How target-date funds work. Retrieved from https://investor.vanguard.com/mutual-funds/target-retirement/#how-it-works

[2] BlackRock. (2023). LifePath Paycheck: A target date fund with lifetime income. Retrieved from https://www.blackrock.com/retirement/lifepath-paycheck

[3] Financial Planning Association. (2023). The next evolution of target date funds: Adding guaranteed income. Retrieved from https://www.financialplanningassociation.org

[4] U.S. Congress. (2022). SECURE 2.0 Act of 2022, Division T of the Consolidated Appropriations Act, 2023, Pub. L. No. 117-328. Retrieved from https://www.congress.gov/bill/117th-congress/house-bill/2617

[5] U.S. Department of Labor. (2019). Final rule: Selecting an annuity provider for a defined contribution plan safe harbor. Retrieved from https://www.dol.gov/agencies/ebsa/employers-and-advisers/guidance/field-assistance-bulletins/2019-01

[6] U.S. Department of Labor. (2023). SECURE 2.0 Act of 2022 summary page. Retrieved from https://www.dol.gov/agencies/ebsa/laws-and-regulations/laws/secure-2-0-act-of-2022

[7] Reish, F., & Toland, B. (2025). Game Changer! DOL’s Lifetime Income Advisory Opinion. Retrieved from https://www.napa-net.org

[8] U.S. Department of the Treasury & Internal Revenue Service. (2024). Proposed regulations on new automatic-enrollment requirement for 401(k) and 403(b) plans. Retrieved from https://www.irs.gov/newsroom

[9] Investment Company Institute. (2024). The evolution of lifetime income options in defined contribution plans. Retrieved from https://www.ici.org/research