401k investing in "target" fund with retirement withdrawals in mind

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Topic Author
thegeographer
Posts: 2
Joined: Sun Apr 11, 2021 9:16 pm

401k investing in "target" fund with retirement withdrawals in mind

Post by thegeographer »

All,

I'm new to the forum and have what I assume to be a "noobie" question but haven't found a satisfactory answer to. My 401k has limited investment options, and I currently have most of my money in a Vanguard Target Retirement 20xx fund. I know this is a mix of US and foreign stocks and bonds that gradually shifts to higher bond percentages as the retirement date draws nigh. Following the boglehead approach, I'm generally happy with this asset allocation and its gradual shift.

What I'm concerned about is after I retire and start to withdraw funds. They'll be a mix of stocks and bonds, but I'll want to withdraw only from the bonds (the low risk investment) and maintain funds in stocks (the high risk investment). How does one implement a sensible withdrawal strategy in one of these target retirement funds/etfs? I'd like to disaggregate the funds into their component Vanguard pieces but that isn't an option in my current 401k.

What am I missing?

Thanks,

Eric
lakpr
Posts: 11612
Joined: Fri Mar 18, 2011 9:59 am

Re: 401k investing in "target" fund with retirement withdrawals in mind

Post by lakpr »

It would help if you did list all the available options in your plan. Surely there must be a 500 index fund (proxy for US equities), an international equities fund (sometimes only Developed Markets funds are offered, should be good enough) and a US bond fund. In my opinion you don't need an international bonds fund, given that you are and presumably will be in the US and your fixed income needs will be in US dollars.

At stated retirement year, most of these Target date funds will be 50:50, with 28% in US equities and 22% in international equities.
ajcp
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Joined: Fri Dec 13, 2013 5:44 pm

Re: 401k investing in "target" fund with retirement withdrawals in mind

Post by ajcp »

When you retire you'll be able to roll the money into an IRA and invest in whichever funds you want.
Topic Author
thegeographer
Posts: 2
Joined: Sun Apr 11, 2021 9:16 pm

Re: 401k investing in "target" fund with retirement withdrawals in mind

Post by thegeographer »

lakpr,

Here are the closest matches:
Equities:
  • Vanguard Institutional Index Fund Institutional Shares (VINIX) 0.035% ER
  • Vanguard Total International Stock Index Fund Admiral Shares (VTIAX) 0.11% ER
  • Vanguard International Value Fund (VTRIX) 0.35% ER
Bonds:
  • Associated Core Bond Fund (no code) 0.01% ER?
  • Associated Short Term Bond Fund (no code) 0.01% ER?
  • Vanguard Target Retirement Income Fund (VTINX) 0.12% ER (mostly bonds)
  • Templeton Global Bond Fund (FBNRX) 0.64% ER
So, it looks like I could replicate the target fund on the equity side, but the bond options don't look good (at least from what I know).

Thoughts?

ajcp,

Wouldn't I be realizing potential loses on this rollover and reallocation? I'd like to only sell fund components that are currently doing well and not realize losses (lets say on global equities).

Thanks to both!

Eric
chazas
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Location: NoVa

Re: 401k investing in "target" fund with retirement withdrawals in mind

Post by chazas »

It’s in your 401(k), shouldn’t matter. If it’s pre-tax, you’re paying tax on everything that comes out. If it’s Roth, you’re not paying tax on anything that comes out.
dbr
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Joined: Sun Mar 04, 2007 8:50 am

Re: 401k investing in "target" fund with retirement withdrawals in mind

Post by dbr »

thegeographer wrote: Tue Apr 13, 2021 8:24 am
Associated Core Bond Fund (no code) 0.01% ER?
It is highly likely this is a suitable fund. The word "core" tends to be a giveaway to being "total bond" like.

Surely there is a description of the holdings of the fund or a statement of fund objective or even an index that you can check.
lakpr
Posts: 11612
Joined: Fri Mar 18, 2011 9:59 am

Re: 401k investing in "target" fund with retirement withdrawals in mind

Post by lakpr »

thegeographer wrote: Tue Apr 13, 2021 8:24 am lakpr,

Here are the closest matches:
Equities:
  • Vanguard Institutional Index Fund Institutional Shares (VINIX) 0.035% ER
  • Vanguard Total International Stock Index Fund Admiral Shares (VTIAX) 0.11% ER
  • Vanguard International Value Fund (VTRIX) 0.35% ER
Bonds:
  • Associated Core Bond Fund (no code) 0.01% ER?
  • Associated Short Term Bond Fund (no code) 0.01% ER?
  • Vanguard Target Retirement Income Fund (VTINX) 0.12% ER (mostly bonds)
  • Templeton Global Bond Fund (FBNRX) 0.64% ER
So, it looks like I could replicate the target fund on the equity side, but the bond options don't look good (at least from what I know).

Thoughts?
Googling "Associated Core Bond Fund" led me to the below PDF:
https://www.associatedbank.com/pdf/plan ... ndfund.pdf

It looks good to me, with only 19% of the bonds in junk, average duration is 5.86 years .... and of course the expense ratio of 0.01% is so much better than Vanguard Total Bond Market Index fund (which charges 0.04%). I would say you got your three-fund portfolio with these components:
  1. Vanguard Institutional Index Fund Institutional Shares (VINIX) 0.035% ER
  2. Vanguard Total International Stock Index Fund Admiral Shares (VTIAX) 0.11% ER
  3. Associated Core Bond Fund (no code) 0.01% ER
So when you retire, sell your target retirement 20xx fund and invest the proceeds as 28% to VINIX, 22% to VTIAX and half to the Associated Core Bond Fund. You might also have a Stable Value Fund in your 401k line up that might be yielding more than what the Total Bond Market is yielding (currently 1.3%). These are generally insurance contracts that guarantee a stated interest rate, but come with some liquidity restrictions that you cannot withdraw all the balance at once, and once you start withdrawals you cannot contribute for a set period of time, etc. In spite of such liquidity restrictions they could be good value; some versions I have seen on this forum guarantee 3%
Johm221122
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Joined: Fri May 13, 2011 6:27 pm

Re: 401k investing in "target" fund with retirement withdrawals in mind

Post by Johm221122 »

Stick with the Target Date fund(at least for now and maybe forever).
There are plenty of opportunities to change by retirement and no penalties or taxes problems to do so.
MrJedi
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Re: 401k investing in "target" fund with retirement withdrawals in mind

Post by MrJedi »

Typically you would withdraw so that you maintain the same AA before and after. The target fund helps you do this without any rebalancing required.

If you withdraw only bonds then your AA will drift more stock heavy, thus defeating the point of the target funds.

Are you trying to move toward an AA not compatible with your current fund? You may need to add more funds if so.
dbr
Posts: 46181
Joined: Sun Mar 04, 2007 8:50 am

Re: 401k investing in "target" fund with retirement withdrawals in mind

Post by dbr »

MrJedi wrote: Tue Apr 13, 2021 9:04 am Typically you would withdraw so that you maintain the same AA before and after. The target fund helps you do this without any rebalancing required.

If you withdraw only bonds then your AA will drift more stock heavy, thus defeating the point of the target funds.

Are you trying to move toward an AA not compatible with your current fund? You may need to add more funds if so.
Exactly. So in classic Boglehead fashion one answer to "what am I missing" should be not just what funds one can use but asking the question why do you want to do that, or, alternatively, why did you choose that fund.

Probably a concern about the Vanguard TR fund is that it ends up at Target Retirement Income Fund and that has a 30/70 allocation, which may be lower in stocks than one wants. Ending up willy-nilly at an allocation you don't want is a hazard of such a fund.
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