Question Vanguard target date fund

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Topic Author
Swennerb
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Joined: Thu Dec 27, 2018 9:17 pm

Question Vanguard target date fund

Post by Swennerb »

I recently read in the Bogleheads Guide to retirement planning
the following on page 146 ,that “target date funds are NOT good if you have a mix of taxable and tax advantages accounts”. I currently do have my Roth and my 403b all in VTRLX- the vanguard 2050 target date fund. According to the book I should take it out and manage it myself- by putting all money that’s in the taxable account 403b into total stock market index funds, and the Roth money into bonds. Did I read that right? What if I don’t feel comfortable managing this myself? Thanks for looking at this with me- Sam
Last edited by Swennerb on Sat Apr 25, 2020 7:38 pm, edited 2 times in total.
delamer
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Re: Help w my retirement plan

Post by delamer »

Welcome.

If you use this format to ask your questions, you’ll get more and better help:

viewtopic.php?f=1&t=6212
radiowave
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Re: Help w my retirement plan

Post by radiowave »

Swennerb welcome to the forum.

Please follow the link that delamer posted and edit your original post to reformat, you'll get much better feedback if you do that.
Bogleheads Wiki: https://www.bogleheads.org/wiki/Main_Page
Topic Author
Swennerb
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Re: Help w my retirement plan

Post by Swennerb »

Ok!! Here goes:
Emergency fund: 0
Debt: 10,000$ at 2.5% for a car
Tax filing: single
Tax rate: 24% federal and 5.4% state
Living in NC and age 36
Desired allocation: 90% stocks and 10% bonds
Currently I have 78,000$ in a vanguard target 2050 and 10,000 in a Roth IRA
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Watty
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Re: Help w my retirement plan

Post by Watty »

Swennerb wrote: Sun Feb 03, 2019 11:59 am Can you guys share your thoughts on how I can manage my own retirement and where you would start??
There is a getting started wiki if you have not seen that.

https://www.bogleheads.org/wiki/Getting_started

The book "The Bogleheads Guide to Investing" is also very readable and your local library may have it.

https://www.amazon.com/s/?search-alias= ... Bogleheads
Swennerb wrote: Sun Feb 03, 2019 3:44 pm Currently I have 78,000$ in a vanguard target 2050
It was not clear if that is in a retirement account or a taxable account.

If it is a retirement account then you really don't need to worry about balancing since you could just put your Roth money into a target date fund too.
HomeStretch
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Re: Help w my retirement plan

Post by HomeStretch »

Congratulations on paying off your student loans!

I suggest you continue to rent and immediately put some of the $ you were using to pay off your student loans towards building a liquid emergency fund equal to 6 months of expenses in a high-interest savings account and paying off your $10,000 car loan. Continue to contribute as much as you can towards retirement in your 401k and roth IRA. I wouldn’t start a house savings fund until the emergency fund is fully funded, car loan paid off and annual retirement savings rate is at least 15-20% of income.
delamer
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Re: Help w my retirement plan

Post by delamer »

Is the target date fund in a 401(k)?

Where is your IRA held in in what investment?
lakpr
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Re: Help w my retirement plan

Post by lakpr »

With a salary of $82000, and a standard deduction of $12200 for 2019, the OP is solidly in the 12% marginal tax bracket. In this tax bracket, I earnestly advise that the person strive to max out the Roth IRA each year. This will have to do double duty as an emergency fund for a few years, until the person is able to free up additional cash and is able to set aside three months of expenses separate from the Roth IRA, a proper EF. God willing, no emergency happens till then.

At that point, the focus then should be to max out the 401k contribution to $19k or whatever yearly IRS max then is.

Edited to add: sorry I misread the salary of $82000 as before tax, not after tax. But that does not change my advice really. Don't get distracted by the goal of building up EF and neglect Roth IRA yearly. Do not pass up the Roth opportunity ever, you will never get it back. In fact, if you have not done so yet, max out $5500 for Roth IRA for 2018 before April 15th.
Topic Author
Swennerb
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Re: Help w my retirement plan

Post by Swennerb »

delamer wrote: Sun Feb 03, 2019 6:27 pm Is the target date fund in a 401(k)?

Where is your IRA held in in what investment?

The vanguard target date fund is a 401k . I only have a Roth IRA
It’s in a fidelity freedom 2050 target date fund
bdpb
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Re: Help w my retirement plan

Post by bdpb »

lakpr wrote: Sun Feb 03, 2019 8:12 pm With a salary of $82000, and a standard deduction of $12200 for 2019, the OP is solidly in the 12% marginal tax bracket. In this tax bracket, I earnestly advise that the person strive to max out the Roth IRA each year. This will have to do double duty as an emergency fund for a few years, until the person is able to free up additional cash and is able to set aside three months of expenses separate from the Roth IRA, a proper EF. God willing, no emergency happens till then.

At that point, the focus then should be to max out the 401k contribution to $19k or whatever yearly IRS max then is.

Edited to add: sorry I misread the salary of $82000 as before tax, not after tax. But that does not change my advice really. Don't get distracted by the goal of building up EF and neglect Roth IRA yearly. Do not pass up the Roth opportunity ever, you will never get it back. In fact, if you have not done so yet, max out $5500 for Roth IRA for 2018 before April 15th.
Sorry, lakpr, I think you may have overlooked the OP is single. That makes their tax rate at 22% or 24%. I think that would generally change the recommendation to as much traditional as possible at those rates, especially considering state tax rate, too.
lakpr
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Re: Help w my retirement plan

Post by lakpr »

bdpb,

At first I did overlook that the OP said he is single, but I did add the edit later. The biggest issue I see here from the initial post is the zero emergency funds, and assuming no other debt, raising that should be his high priority. But it would also be foolish to forego the opportunity to contribute to a Roth IRA, hence the recommendation to first fill the Roth so it can do double duty as EF in the initial years. The contributions can be withdrawn in case of an emergency, and my hope is that at this phase he does not truly face such emergency. That is why my end recommendation does not change substantially.

Actually, thinking about this a little further, if the OP can max out his 401k at work for the full 19k, at his 24% marginal federal tax bracket and 5.4% state tax bracket, he should be getting a tax reduction of 29.4% on the full 19k. Or, just a shade under $5700. Practically free found money. This tax savings can be used to fund the Roth IRA. Then, in addition to the ability to withdraw contributions from the Roth, he can also perhaps petition for a 401k loan should the emergency arise.

No separate EF needed, at least in the initial stages. Then once his financials stabilize a little more, he can truly let go of the Roth's crutch and build a true emergency fund.

Traditional IRA would not let you withdraw funds in an emergency, those funds are truly locked up until age 59.5, at least if the OP does not want tax penalties and income taxes on the withdrawal.
Thecallofduty
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Re: Help w my retirement plan

Post by Thecallofduty »

I would not focus on house down payment yet.

If it were me this is what I would do:

Max 401k
Build emergency fund. Should be easier now that you have no student loans. You can put in a high yield fdic insured saving account or something like vanguard money market fund.
Continue to contribute to ira
Pay off car loan


once emergency fund and car loan is funded/paid off then use proceeds to save for a house if that is what you want.

Not sure if i missed it but what investment is in your ira presently?
-thecallofduty
Topic Author
Swennerb
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Joined: Thu Dec 27, 2018 9:17 pm

Re: Help w my retirement plan

Post by Swennerb »

Thecallofduty wrote: Mon Feb 04, 2019 2:11 am I would not focus on house down payment yet.

If it were me this is what I would do:

Max 401k
Build emergency fund. Should be easier now that you have no student loans. You can put in a high yield fdic insured saving account or something like vanguard money market fund.
Continue to contribute to ira
Pay off car loan


once emergency fund and car loan is funded/paid off then use proceeds to save for a house if that is what you want.

Not sure if i missed it but what investment is in your ira presently?
The Roth IRA is in a Fidelity freedom 2050 target fund
Topic Author
Swennerb
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Joined: Thu Dec 27, 2018 9:17 pm

Re: Help w my retirement plan

Post by Swennerb »

I wanted to ask you guys- I have 10,000$ in another Roth IRA that I’m using as my emergency fund. It’s currently in a Fidelity US treasury money market fund . Since the Accnt is w Fidelity it won’t let me use a vanguard fund. Do you guys have a better money market fund to recommend for this? I think the expense ratio w Fidelity is too high. Thanks!
lakpr
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Re: Help w my retirement plan

Post by lakpr »

Swennerb wrote: Fri Jul 26, 2019 7:36 am I wanted to ask you guys- I have 10,000$ in another Roth IRA that I’m using as my emergency fund. It’s currently in a Fidelity US treasury money market fund . Since the Accnt is w Fidelity it won’t let me use a vanguard fund. Do you guys have a better money market fund to recommend for this? I think the expense ratio w Fidelity is too high. Thanks!
My first question would be: why are Roth funds in a money market? I know you said emergency fund above. But it should at least be a 60:40 fund. While waiting for that emergency to occur, your funds are earning 0% real (meaning barely keeping up with inflation).

At Fidelity, you can split that into 6k to FZROX (Fidelity zero index fund) and 4K to FXNAX (Fidelity total bond index fund) with 0% and 0.03% expense ratios respectively.

It need not be 60:40 if you feel skittish, but if you want to earn anything meaningful above inflation, at least 30% stocks are necessary.
Topic Author
Swennerb
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Joined: Thu Dec 27, 2018 9:17 pm

Re: Help w my retirement plan

Post by Swennerb »

My understanding is that if the stocks took a dive then I wouldn’t lose much. The money market funds still make some interest right?
lakpr
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Re: Help w my retirement plan

Post by lakpr »

Swennerb wrote: Fri Jul 26, 2019 8:32 pm My understanding is that if the stocks took a dive then I wouldn’t lose much. The money market funds still make some interest right?
Yes, 2.5% or may be a little less; and the inflation is running around 2%. So you are earning in real terms, 0.3% to 0.5% per year.
supersecretname
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Re: Help w my retirement plan

Post by supersecretname »

since you don't seem to be *actually* using your Roth IRA (e.g. the whole point is for free gains), I'd pay off the car loan next. i don't think you are in a very good position to think about buying a house in that price range soon. in fact, it'd probably be a distraction to your long-term wealth.

you need to invest the money that's in the roth. even if it's 50/50, gotta get it working.

you don't list expenses, but those probably need a lookin' at.
Topic Author
Swennerb
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Re: Help w my retirement plan

Post by Swennerb »

I just did pay off my car. So at this point I have no debt at all.
After I have maxed out my retirement I have about $5900/mos left over. Currently though I only have about 5000$ in savings. Expenses/mos are that I pay 1100$ in rent, $100 for my phone,
100$ in gas and 100$/mos in car insurance, $400/mos in food.
That’s really it so I end up with about 3700$/mos leftover each month to save up for a house. That’s why I was trying to figure out how best to manage the 10,000$ in the Roth for the emergency fund but you still think would be best to invest it in mostly stocks and not a money market?
lakpr
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Re: Help w my retirement plan

Post by lakpr »

Swennerb wrote: Fri Aug 02, 2019 7:10 pm I just did pay off my car. So at this point I have no debt at all.
After I have maxed out my retirement I have about $5900/mos left over. Currently though I only have about 5000$ in savings. Expenses/mos are that I pay 1100$ in rent, $100 for my phone,
100$ in gas and 100$/mos in car insurance, $400/mos in food.
That’s really it so I end up with about 3700$/mos leftover each month to save up for a house. That’s why I was trying to figure out how best to manage the 10,000$ in the Roth for the emergency fund but you still think would be best to invest it in mostly stocks and not a money market?
Yes, with $3700 left over per month and approximately $2500 per month expenses, beef up your emergency fund to 3 months ( and you can do it in just 2 months ). The Roth should be 100% equities, no doubt about it. The Roth can do double duty as EF but that does not mean it should.

Edited to add: especially it should not since you have shown the ability to save 150% of your expenses from your income.
pkcrafter
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Re: Help w my retirement plan

Post by pkcrafter »

Swennerb wrote: Sun Feb 03, 2019 8:56 pm
delamer wrote: Sun Feb 03, 2019 6:27 pm Is the target date fund in a 401(k)?

Where is your IRA held in in what investment?

The vanguard target date fund is a 401k . I only have a Roth IRA
It’s in a fidelity freedom 2050 target date fund
Swen, are you holding a freedom 2050 OR freedom INDEX fund?

I would not recommend using Roth for a savings/emergency fund--You're wasting the tax-free space.

Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.
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