401k investing in "target" fund with retirement withdrawals in mind
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401k investing in "target" fund with retirement withdrawals in mind
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
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
Re: 401k investing in "target" fund with retirement withdrawals in mind
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.
At stated retirement year, most of these Target date funds will be 50:50, with 28% in US equities and 22% in international equities.
Re: 401k investing in "target" fund with retirement withdrawals in mind
When you retire you'll be able to roll the money into an IRA and invest in whichever funds you want.
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Re: 401k investing in "target" fund with retirement withdrawals in mind
lakpr,
Here are the closest matches:
Equities:
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
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
- 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
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
Re: 401k investing in "target" fund with retirement withdrawals in mind
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.
Re: 401k investing in "target" fund with retirement withdrawals in mind
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.
Re: 401k investing in "target" fund with retirement withdrawals in mind
Googling "Associated Core Bond Fund" led me to the below PDF:thegeographer wrote: ↑Tue Apr 13, 2021 8:24 am lakpr,
Here are the closest matches:
Equities:Bonds:
- 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
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).
- 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
Thoughts?
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:
- Vanguard Institutional Index Fund Institutional Shares (VINIX) 0.035% ER
- Vanguard Total International Stock Index Fund Admiral Shares (VTIAX) 0.11% ER
- Associated Core Bond Fund (no code) 0.01% ER
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Re: 401k investing in "target" fund with retirement withdrawals in mind
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.
There are plenty of opportunities to change by retirement and no penalties or taxes problems to do so.
Re: 401k investing in "target" fund with retirement withdrawals in mind
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.
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.
Re: 401k investing in "target" fund with retirement withdrawals in mind
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.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.
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.