A 401(k) Fund’s 2040 Date Is Only a Starting Point for Retirement Planning

Two people can choose the same 2040 target-date fund, leave work in the same year, and still end up with outcomes separated by tens of thousands of dollars. The date on the label is only the first thing to consider.

A hypothetical 51-year-old with $600,000 in her 401(k) might select a 2040 target-date fund because the date seems to line up with her retirement age. But if she does not check the fund’s holdings and risk level, a market downturn could leave her with a very different result.

The example is fictional, but the issue is not. At 51, she still has time to evaluate the choice before she depends on the account for income.

What the 2040 Date Really Means

The year on a target-date fund does not guarantee that the investment mix is right for every saver. It simply signals when the fund is intended for retirement, while managers make their own assumptions about risk and how long the money may need to last. The SEC says these funds do not guarantee enough retirement income, even if they are held through the year listed on the label.

Each fund follows its own glide path, or schedule for shifting from stocks into bonds. Two funds with the same date can hold very different allocations, and they generally fall into two broad categories:

• A “to retirement” glide path reaches its most conservative mix in the target year and then stays there.
• A “through retirement” glide path keeps becoming more conservative after the target year, which means it can remain more heavily invested in stocks before 2040.

One Date, Two Very Different Results

Imagine her full $600,000 is invested in one of two hypothetical 2040 funds. In a poor year, stocks drop 30% while bonds do not move. In a stronger year, stocks rise 7% and bonds return 4%.

In the downturn example, Fund B loses $27,000 less. In the positive-year example, Fund A gains $2,700 more. Over time, greater stock exposure can offer more upside, but it also increases the chance of loss. Because target-date funds gradually shift their allocations, the mix may not stay the same between now and 2040.

That balance matters. If a fund moves into bonds too quickly, it may not keep pace with the rising cost of living over a long retirement. Holding more stocks, however, means accepting larger swings when markets decline. The research inflation index for older Americans rose 3.6% over the past year, and the standard Medicare Part B premium climbed to $202.90 a month in 2026, up from $185. She needs enough growth to support retirement, but not so much risk that she cannot تحمل the losses.

Her contributions make the decision even more important. At 51, she can contribute up to $32,500 in 2026, including the regular catch-up amount. Current rules allow workers ages 60 through 63 to make an even larger catch-up contribution, though those dollar limits will change before she reaches that age range. Each new contribution goes into the investment mix the manager has chosen.

Five Things to Review in a 2040 Fund

1. Current stock and bond mix. Read the fact sheet and compare the present equity share with how much loss you could accept in a 30% decline. Use the same rough calculation shown above for your own balance.
2. Glide path endpoint. See when the fund stops becoming more conservative. If that happens in 2040, it is a “to” fund. If the fund keeps shifting for years after that, it is a “through” fund. Within the same fund family, 2035 is usually more conservative than 2040, while 2045 is usually more stock-heavy.
3. Expense ratio. Consumer advocate Clark Howard has pointed to low-cost target-date index funds charging around 0.20% a year or less. On a $600,000 balance, a 0.20% expense ratio would cost $1,200 a year, compared with $4,500 at 0.75%. Also look for any extra plan fees.
4. Employer default. If your plan enrolled you automatically by birth year, your employer selected both the manager and the glide path. Make sure the assumptions fit your actual retirement timing, since your plan may offer a better option.
5. Separate emergency savings. The bond portion of the fund should not serve as your emergency fund. Before age 59½, early withdrawals can bring a 10% additional tax penalty. Later, taking a large pretax 401(k) withdrawal could raise taxable income and eventually affect Medicare premiums. Keeping six to 12 months of expenses in accessible savings can help you avoid tapping retirement money for emergencies.

The date on the label is only a starting point. Your actual retirement timing and your comfort with losses should determine the allocation, and checking it can take about 15 minutes with a fact sheet.