Target Retirement Funds

[Hotrod56425]

We hear a lot about "buckets of money" for our portfolios. I have (and my wife will have) a pension and SS that will cover 90-95% of our monthly needs. As she is not interested in finance, I want to simplify our Traditional IRA holdings so that it will be easier for her to deal with. Would a "ladder" of Target funds, say 5: 2020(25%), 2025(25%), 2030(25%), 2035(15%), and 2040(10%), be a good mix? It seems like they would, as they get progressively more conservative as time goes by, give us most of the money up front when we are younger and less when we are older and probably less active. I am 65, and she is 59, and our current portfolio totals about $600k.

[Raa]

To me it just doesn't make any sense to do this. Target retirement funds are meant to be a simple one stop shop for your needs. You dump it all in and don't change it because it changes it for you. Based on your ladder the weighted average is a 2028. So you might as well just put it 100% into Target Retirement 2030. I understand that the asset allocation of these funds is probably not linear vs time but it isn't far off.

[ObliviousInvestor]

Edited to add: Upon re-reading your post, I think there might be a misunderstanding about what target retirement funds do. On the date in question, they do not turn to cash. Rather, they steadily move toward bonds as the date in the name approaches.

If I did the math right, that leaves you with about 75% in stocks and 25% in bonds (right now). That's more aggressive than the typical retirement portfolio around here. But, depending on your risk tolerance, it could possibly be OK.

I'm not sure I understand the advantage of this relative to simply using the one fund that most closely replicates that allocation (so, 2025, I guess). The ladder of funds would continue shifting bond-ward over a longer period of time, but is that necessarily an advantage?

If the goal is simplicity, it seems to me that one target retirement fund is a lot simpler than several.

[Taylor Larimore]

Hotrod:

It seems like they would, as they get progressively more conservative as time goes by, give us most of the money up front when we are younger and less when we are older and probably less active. I am 65, and she is 59, and our current portfolio totals about $600k.

I agree with Oblivious Investor that you may misunderstand Target Funds.

* Target Funds automatically become "more conservative as time goes by."

* Target Funds do not give you money "up front" or (any other time). You simply withdraw when and what you want.

Vanguard Target Funds hold over 15,000 securities. Adding another Target Fund should not add any more securities--You would be adding unnecessary overlap and complexity. The great advantage of a Target Fund is the simplicity of a very diversified one-fund portfolio.

You can read more about Target Funds here:

https://personal.vanguard.com/us/funds/ ... rementList

Exchanging taxable funds can trigger taxes. If you would like the Bogleheads to give you specific suggestions about your portfolio, use the format in this link:

Asking Portfolio Questions

Best wishes.
Taylor

[dickenjb]

If I were in your shoes whereby nearly all of my retirement was covered by pension, AND I wanted the simplest possible portfolio, I would put it all in LS Moderate Growth.

If all your retirement needs are met by pension, you are investing your IRA for the next generation so a 60% stock exposure is not out of line.

[YDNAL]

..... as they [insert: target date funds] get progressively more conservative as time goes by, give us most of the money up front when we are younger and less when we are older and probably less active.

Hotrod,

What does the above quote mean?

[NYBoglehead]

If you will have 90-95% of your costs covered by pensions and social security, I'm guessing the other 5-10% will probably be covered by the income alone on a $600k portfolio (assuming 2% in dividends/interest, that'll be $12k/yr, or 10% of $120k/yr in expenses).

If I were in your shoes I'd probably park everything in the Balanced Fund at Vanguard. 60/40 stocks to bonds and at 10 bps the ER is fantastic.

[Hotrod56425]

Thanks, all, for your help. I do understand how target funds work, and they don't "give me" the money; I explained/asked in a confusing manor. What I was looking at is that we would have the % amounts available for withdrawal in those funds during a time period--my error! But, in answering me, you all helped me to better understand what I was trying to do in allocating our IRAs. Instead of 5 funds, varying from about 65/35 s/b to about 90/10 s/b, I think I was really thinking of something more like the LS Growth, STAR, or LS Moderate Growth and just didn't consider those enough. Thanks, again!

[joe8d]

If I were in your shoes whereby nearly all of my retirement was covered by pension, AND I wanted the simplest possible portfolio, I would put it all in LS Moderate Growth.

If all your retirement needs are met by pension, you are investing your IRA for the next generation so a 60% stock exposure is not out of line.

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