Americans saving for retirement are increasingly focused on maximizing the wealth they will accumulate to sustain their post-career lives and achieve long-held retirement goals.
Years of experience reporting on personal finance have repeatedly shown me that people are deeply concerned about their economic futures and continuously seek reliable, objective information from trusted finance leaders.
Central to these concerns is how to manage long-term investments such as 401(k)s and IRAs, a topic highlighted by an ongoing debate between major financial figures regarding target-date funds.
Personal finance personality Dave Ramsey views target-date funds — which often automatically shift from aggressive growth stocks to conservative money markets and bonds as an investor ages — with skepticism.
He warns that this traditional asset allocation approach can become excessively conservative.
“If you’re not careful, your target-date fund might be so conservative that inflation starts to kick your butt as you age,” Ramsey wrote. “We recommend keeping growth stock mutual funds in your portfolio, even after you retire. Your money can still grow.”
Conversely, investment giant Vanguard defends target-date funds as essential tools for managing market, inflation, and longevity risks.
Vanguard supports a structured glide path that systematically reduces stock exposure while increasing bond allocations as investors approach and navigate their retirement years, ensuring balanced diversification.
“We blend investment theory and behavioral insights to design target-date funds (TDFs) that focus on helping investors save enough to have lasting retirement income,” Vanguard wrote. “Low-cost, world-class funds serve as the foundation for our TDFs, which we build with portfolio construction best practices.”
“This results in a TDF that delivers broad global diversification and balances market, inflation, and longevity risks in an efficient and transparent manner.”
Dave Ramsey outlines his investing philosophy
Ramsey explains that his investing philosophy, while containing complex nuances, can be boiled down to a plain and simple approach.
Individuals must first build a secure foundation by getting completely out of debt and saving a fully funded emergency fund, Ramsey emphasizes.
“Getting out of debt in order to invest is the quickest right way to build wealth. So if you haven’t paid off all your debt or saved up 3–6 months of expenses, stop investing — for now,” Ramsey wrote.
Once debt is cleared and emergency savings are established, the next step is to direct 15% of one’s income into tax-advantaged retirement accounts such as 401(k)s and IRAs.
“You’ll get the most bang for your buck by using tax-advantaged investment accounts,” Ramsey wrote. “For example, pretax investment accounts give you a tax break on your contributions now (but you’ll pay taxes on your withdrawals in retirement), while after-tax investment accounts let you enjoy tax-free growth and tax-free withdrawals in retirement.”
Within those accounts, people should choose good growth stock mutual funds to maximize their long-term wealth accumulation.
“We like mutual funds because they spread your investment across many companies, and that helps you avoid the risks that come with investing in single stocks and other ‘trendy’ investments,” Ramsey explained.
Ramsey noted his belief that maintaining a long-term perspective and investing consistently through market fluctuations remains essential for steady growth.
Finally, Ramsey recommends partnering with a professional financial advisor, which allows individuals to navigate their specific choices with expert guidance.
Vanguard highlights glide path for target-date funds
Vanguard starts younger investors with more aggressive stock allocations in target-date funds, then implements a glide path toward retirement.
“Given the long investment horizon, younger investors can likely afford to take more risks with a 90% stock allocation, which captures growth but is diversified with just enough bonds to temper the worst downturns,” Vanguard wrote.
Here are the recommended phases, according to Vanguard:
- Age 20 (Phase 1: Early career): Focuses entirely on growth with a 90% stock / 10% bond split. The specific allocation consists of 54% U.S. stocks, 36% international stocks, 7% U.S. nominal bonds, and 3% hedged international bonds.
- Age 40 (Phase 2: Mid-career Transition Begins): Begins a gradual shift away from stocks to reduce risk and build a more conservative portfolio. The allocation initially holds steady at the 90% stock / 10% bond baseline (54% U.S. stocks, 36% international stocks, 7% U.S. nominal bonds, and 3% hedged international bonds) before the tapering accelerates.
- Age 60 (Phase 2: Continued transition): De-risks further by moving to a 60% stock / 40% bond split. The portfolio shifts to 36% U.S. stocks, 24% international stocks, 28% U.S. nominal bonds, and 12% hedged international bonds, while preparing to introduce short-term Treasury Inflation-Protected Securities (TIPS) for inflation protection.
- Age 65 (Phase 3: Retirement): Reaches a 30% stock / 70% bond baseline. The asset mix changes to 18% U.S. stocks, 12% international stocks, 37.24% U.S. nominal bonds, 15.96% hedged international bonds, and 16.8% short-term TIPS. Investors can either stick to this default path or opt to lock in a higher 50% equity allocation via the Target Retirement Income and Growth strategy.
- Age 72 (Phase 4: Withdrawal): Marks the typical start of retirement withdrawals. The default glide path locks into its final, most conservative income-generating allocation of 30% stocks and 70% bonds.
(Source: Vanguard)
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Quiggle’s calculations on Ramsey vs. Vanguard strategies
To analyze the mathematical difference between examples of these two strategies in action, I ran some basic calculations based on a standard scenario of a worker contributing $500 monthly over a 40-year career, comparing a bond-adjusted 7% average annualized return (one example of the Vanguard strategy) against a 10% equity-driven return (one example of the Ramsey strategy).
The differences, as you’ll see below, are remarkable.
It’s important to note that “bond-adjusted” implies lower returns because conservative bonds are added to reduce risk, while “equity-driven” implies higher growth potential because the money is entirely in stocks — though I emphasize that this strategy carries significantly higher market risk and offers no guaranteed returns.
For example, if the market suffers a severe multi-year downturn right as someone enters retirement, a 100% stock portfolio can be devastated, meaning they may not have decades left to wait for the market to average back out to 10%.
With that caveat out of the way, I can report that, when projecting these long-term compounding returns, the financial impact of choosing between a growth stock mutual fund portfolio and a target-date glide path becomes stark.
Under the conservative, bond-adjusted 7% return — a trajectory closer to Vanguard’s de-risked model — the accumulated total reaches roughly $580,000.
However, if that same individual follows Ramsey’s philosophy of maintaining a portfolio invested entirely in growth stock mutual funds and achieves the higher 10% average return, the final balance climbs to over $2.6 million.
While the lower-yield model protects older citizens from devastating market crashes on the eve of retirement, these calculations explain why many savers fear that excessive caution could cost them millions in potential wealth.
Related: Charles Schwab, Fidelity sound alarm on Roth IRA rule
