Spreading out Target Dates?

[BuckyBadger]

I currently have two retirement accounts, my 401k (well, 403b, actually) is at J.P. Morgan. It's got about $30k in it and it's in the LifePath 2040-I. My Roth IRA (to which I am no longer able to contribute due to income limits) is at Vanguard. It's got about $20k in it and it's in the Target Retirement 2045 Fund.

I'm planning on opening a Traditional Non-Deductible IRA (one for me, one for my husband) soon with the intention of rolling it over into a Roth as soon as I can. I'm planning on doing this through Vanguard. My husband's Rothe IRA and company 401k are both at Vanguard and I like the company.

My question is, does it make sense to spread out the target dates on my target date funds? Should I put it in a 2050? Does it matter?

Information that might make a difference: My husband is 32 and I am 31. We would like to retire early. Between our 401k contributions ($16500 each), company matches (7% for him, 2% for me), and IRAs ($5k for both of us) we put about $53k away every year in tax advantaged accounts. We also put $26k per year away that is intended for long term retirement purposes but isn't tax advantaged and might be used more short term if we were to start needing to save for anything else. We make a combined $230k gross.

[Mr Nice Guy]

The target date funds are managed with the expectation that whoever holds those funds will be retiring within that time frame. They will become increasingly more conservative in their investments as the "target date" approaches.

If you want an aggressive mutual fund all the way up until you retire, then yes, maybe you would want to stagger the "target dates" out ahead of the year you plan on retiring. If you want to sleep at night, then maybe not.

Target date funds typically have pretty high expense ratios. You seem to be pretty savvy with investing; have you considered any mutual funds that are not target date funds?

[disneysteve]

Target date funds typically have pretty high expense ratios.

No they don't. Vanguard's funds have ERs of 0.19%. You can't get a whole lot lower than that.

[disneysteve]

If you want to increase the aggressiveness of your portfolio beyond the target fund, I wouldn't add another target fund. I'd add a routine stock fund.

[MonkeyMama]

No they don't. Vanguard's funds have ERs of 0.19%. You can't get a whole lot lower than that.

Yes, but you also pay expense ratios on all of the underlying funds.

Target date funds are inherently more expensive when you can just own the underlying funds.

I actually have a VG target fund because I do not mind the 0.19% for simplicity, but I think it's important for people to understand they are paying a premium for any "fund of funds."

[disneysteve]

Yes, but you also pay expense ratios on all of the underlying funds.

No you don't. The ER is 0.19% total. That's it.

https://personal.vanguard.com/us/funds/vanguard/TargetRetirementList#targetAnchor

"The total annual asset-based fee includes the weighted average of the annualized expense ratios of underlying mutual funds."

[MonkeyMama]

No you don't. The ER is 0.19% total. That's it.

https://personal.vanguard.com/us/funds/vanguard/TargetRetirementList#targetAnchor

"The total annual asset-based fee includes the weighted average of the annualized expense ratios of underlying mutual funds."

Well, that's interesting.

I still think VG is unique in that regard. I have only ever heard that "funds of funds" were more expensive. I still think this is an important aspect to consider and think about when choosing mutual funds with other underlying mutual funds. There are some REALLY Expensive target date funds out there.

[disneysteve]

Well, that's interesting.

I still think VG is unique in that regard. I have only ever heard that "funds of funds" were more expensive. I still think this is an important aspect to consider and think about when choosing mutual funds with other underlying mutual funds. There are some REALLY Expensive target date funds out there.

And that's why we all keep recommending Vanguard for people's investments and retirement accounts.

You are correct that ER is always important to consider when choosing funds - any funds, not just target funds.

[jpg7n16]

My question is, does it make sense to spread out the target dates on my target date funds? Should I put it in a 2050? Does it matter?

...

We also put $26k per year away that is intended for long term retirement purposes but isn't tax advantaged and might be used more short term if we were to start needing to save for anything else. We make a combined $230k gross.

If you have different timeframes for the money, that is really the only reason multiple target funds would even make sense.

The funds auto adjust their risk and portfolios over time to meet your expected needs at that target.

Using the timeline available at: https://personal.vanguard.com/us/fun...t#targetAnchor

... for the Vanguard funds mentioned above, there will still be some stock allocation even after you retire. Because at the point of retirement (early or not), you still have to provide for another hopefully 30-40+ years. It's hard to do that if you are only holding cash.

If you just wanted more stock growth potential, a common thing I like to do is supplement the target fund by keeping an additional amount in a stock fund. (I noticed DS mentioned this in reply #3 - and I totally agree with him there)