Best Target-Date 2040 Mutual Funds

Target-date 2040 funds cater to investors with approximately 15 years until retirement, typically those in their late 40s to early 50s today. With a meaningful growth runway still ahead, these funds maintain a moderately aggressive allocation of roughly 70–80% equities and 20–30% bonds. The glide path is in its middle phase — past the most aggressive point but still substantially equity-heavy.

For a comprehensive overview of target-date fund mechanics, glide path philosophies, and how to evaluate "to" vs. "through" approaches, see our detailed Target-Date 2030 category page. The 2040 vintage follows the same principles with a higher equity starting point and a longer transition period.

Three major funds compete in the 2040 vintage:

• Vanguard Target Retirement 2040 (VFORX) — $98.2 billion AUM, 0.12% expense ratio, +16.29% one-year return. The market leader, using Vanguard's low-cost index approach across four diversified sub-funds.
• T. Rowe Price Retirement 2040 (RRTCX) — $18.7 billion AUM, 0.60% expense ratio, +17.71% one-year return. Actively managed with higher fees but historically competitive performance.
• Schwab Target 2040 Index (SWYEX) — $6.3 billion AUM, 0.08% expense ratio, +16.22% one-year return. The lowest-cost option, slightly trailing Vanguard in returns.

The pattern is consistent with other target-date vintages: T. Rowe Price's active management has produced modestly higher returns (+17.71% vs. +16.29% for Vanguard) but at 5x the cost. Whether that premium is worth it depends on whether active outperformance persists over your 15-year time horizon. Historical data suggests most active managers fail to beat their benchmarks over long periods — a topic covered in our guide on what is an index fund.

With roughly 75% equity exposure, target-date 2040 funds have captured most of the stock market's recent gains while bonds provide a modest buffer:

• VFORX returned +16.29% — closely tracking a 75/25 stock/bond blend
• RRTCX returned +17.71% — reflecting both active stock selection and a potentially higher equity weight in T. Rowe Price's glide path
• SWYEX returned +16.22% — nearly identical to Vanguard, confirming both use similar index-based methodologies

Compared to adjacent vintages, the 2040 funds sit in the middle of the return spectrum — higher than target-date 2035 (+15.50%) and slightly below target-date 2045 (+16.72%). The incremental return differences between neighboring vintages narrow as equity allocations approach 80%+, since the marginal increase in stocks becomes smaller.

For context, the S&P 500 returned approximately +20% over the same period. A 2040 fund's 75% equity weight — split between U.S. and international stocks — naturally trails a pure U.S. large-cap index.

Your selection criteria should prioritize:

1. Availability: If your 401(k) offers only one target-date series, the choice is made for you. Use the 2040 vintage if it matches your retirement timeline.

2. Cost: SWYEX at 0.08% is the cheapest, followed by VFORX at 0.12%. Over 15 years on a $200,000 balance, the fee difference between SWYEX and RRTCX (0.08% vs. 0.60%) amounts to roughly $12,000 in cumulative costs. Read more about fee impacts in our expense ratio guide.

3. Philosophy: Do you believe active management can add value net of fees? If yes, RRTCX is a reasonable choice. If you prefer market returns at the lowest possible cost, VFORX or SWYEX are ideal.

4. Glide path design: T. Rowe Price tends to hold more equities at every point along the glide path compared to Vanguard or Schwab. This means slightly higher growth potential but also more volatility — particularly important as you approach retirement.

If you're 15 years from retirement, you're in a critical phase of wealth accumulation. Target-date 2040 funds are designed to be your complete retirement portfolio in a single holding. Key considerations:

• Maximize contributions: With 15 years of compounding ahead, increasing your savings rate matters more than fund selection. Consider strategies like dollar-cost averaging to build your balance steadily.
• Don't duplicate: If you use a target-date 2040 fund, avoid adding separate stock or bond funds in the same account. The target-date fund already includes broad market exposure.
• Tax-advantaged placement: Hold target-date funds in 401(k)s, IRAs, or Roth IRAs. Their frequent internal rebalancing makes them less tax-efficient in taxable accounts.
• Review periodically: If your retirement plans change (e.g., you decide to work until 2045), consider switching to a target-date 2045 fund.