Advice on Vanguard $$ - where to move it?

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CindyBlue

Full time employment: Posting here.
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Having just retired this past June (wow, still can't believe it!) I am hoping for some advice about my Vanguard 403b account. I just spent an hour on the phone trying to get someone to understand that I didn't really know what questions to ask, and thankfully a nice gal finally figured me out (smile) I am thinking about trying to go "more conservative" in my 403b.
Some info: I am still 18 months from Social Security, but I'll start my pension (about half of what I think I'll need for my monthly budget) in January when I turn 65. I have enough in my savings to get me through to when Social Security starts, and will not necessarily need my 403b until then, and even after, if I am very careful with my spending. I won't know if I'll "need" the 403b funds for my yearly expenses until the next year is up and I will have had time to practice with my set budget (that I actually practiced in 2017, with a bank account with only that money in it, that I spent from exclusively.)
Now to the question (I hope I am asking it correctly, but I don't really know much about it!)
My 403b is currently in a "20-25" fund which I was told is a "sliding retirement type fund" for someone retiring in 2025. This fund is 65% stocks and 35% bonds, I was told by the nice gal at Vanguard. She also told me I could move it to a "20-20 fund," which is 55% stocks and 45% bonds, i.e., more conservative.
Any advice for me as to whether should I leave my 403b in the "20-25" fund, or move it to the "20-20" fund?
 
Vanguard has these target date funds from 2020 to 2065, with 5 year increments. You have a 2025 fund and I am not sure there is a wide difference with 2020 fund to worth moving. Vanguard will gradually reduce security percentage and move to bond. I do not know how often they change though.

2025 fund fact sheet shows 38.1% bond:
https://www.google.com/search?ei=op...ws-wiz.......0i71j0i7i30j0i8i7i30.sEzhDdKxZrQ

2020 fund fact sheet shows 41.3% bond:
https://www.google.com/search?ei=Tp...hUKEwjJ4eWDrZrkAhVMRa0KHZgoDEAQ4dUDCAo&uact=5

My 22 year old son has his 401K money in 2055 fund which is about 10% bond right now.
 
Sorry, I know this wasn't your question, but using a target date fund, you're paying higher fees than need be. You could simply go with the Boglehead's 3-fund portfolio:

Vanguard Total Stock Market Index Fund (VTSAX)
Vanguard Total International Stock Index Fund (VTIAX)
Vanguard Total Bond Market Fund (VBTLX)

..and save on fees. You could also customize your mix to your preference, rather than just accepting the target date fund's allocation.

To the OP's actual question, if it were me, I'd prefer the 20-25 fund over the 20-20 fund, but it does take on more risk. I think that all of VG's target date funds are overly conservative, and therefore, give up too much in the way of returns to seek that perceived safety.
 
With no other information than your age and that you have some future SS, I would suggest that 55/45 is reasonable as a conservative allocation.

When I'm unsure what to do with a particular account I usually park it in Vanguard's Retirement Income fund, which is all the way down at 30/70. But I have a lot of equities elsewhere.
 
CindyBlue said:
Yes!! That is exactly what I need to ask but didn't know the language for! Thank you!!:clap:

So...after reading my info above, what do you think?
Click to expand...
I think it is up to you. I'm at 60% stocks and 40% bonds. My pension and Social Security pay all my bills, so I'm just covering inflation and possible long term care expenses.


HNL Bill said:
Sorry, I know this wasn't your question, but using a target date fund, you're paying higher fees than need be. You could simply go with the Boglehead's 3-fund portfolio:

Vanguard Total Stock Market Index Fund (VTSAX)
Vanguard Total International Stock Index Fund (VTIAX)
Vanguard Total Bond Market Fund (VBTLX)

..and save on fees. You could also customize your mix to your preference, rather than just accepting the target date fund's allocation.

..........
Click to expand...
Agree, this is what I do and re-balance yearly. The Target fund does it automatically, but I see no reason to pay extra for that service.
 
HNL Bill said:
Sorry, I know this wasn't your question, but using a target date fund, you're paying higher fees than need be. You could simply go with the Boglehead's 3-fund portfolio:

Vanguard Total Stock Market Index Fund (VTSAX)
Vanguard Total International Stock Index Fund (VTIAX)
Vanguard Total Bond Market Fund (VBTLX)

..and save on fees. You could also customize your mix to your preference, rather than just accepting the target date fund's allocation.

To the OP's actual question, if it were me, I'd prefer the 20-25 fund over the 20-20 fund, but it does take on more risk. I think that all of VG's target date funds are overly conservative, and therefore, give up too much in the way of returns to seek that perceived safety.
Click to expand...

Vanguard 2020 fund is composed of below 5 funds:

Vanguard Total Stock Market Index Fund Investor Shares 31.20%
Vanguard Total Bond Market II Index Fund Investor Shares† 29.30%
Vanguard Total International Stock Index Fund Investor Shares 20.20%
Vanguard Total International Bond Index Fund Investor Shares 12.60%
Vanguard Short-Term Inflation-Protected Securities Index Fund Investor Shares 6.70%

For a novice investor, owning one fund which will auto pilot to change allocation, would be easier than working on multiple funds on your own. Plus, you only need to pay one fee for one fund only. No?
 
fh2000 said:
..........Plus, you only need to pay one fee for one fund only. No?
Click to expand...
The fee is a percentage of the amount invested, so paying a fee on only one fund doesn't necessarily save you money. It is all about the percentage you pay per dollar invested.
 
HNL Bill said:
Sorry, I know this wasn't your question, but using a target date fund, you're paying higher fees than need be.
Click to expand...
The slightly higher expense ratio for the Target Retirement fund is WELL WORTH IT for someone like the OP!

Did you just seriously recommend that someone who doesn't know much about investing nor even the term "asset allocation" should leave a Target Retirement fund and split it into 3 or 4 funds for a savings of probably less than $10 to $100 a year? What are you THINKING?

The best thing for the OP is to stick to a Target Retirement fund for quite a while and learn on their own whether they know enough to switch.
 
fh2000 said:
Vanguard 2020 fund is composed of below 5 funds:

Vanguard Total Stock Market Index Fund Investor Shares 31.20%
Vanguard Total Bond Market II Index Fund Investor Shares† 29.30%
Vanguard Total International Stock Index Fund Investor Shares 20.20%
Vanguard Total International Bond Index Fund Investor Shares 12.60%
Vanguard Short-Term Inflation-Protected Securities Index Fund Investor Shares 6.70%

For a novice investor, owning one fund which will auto pilot to change allocation, would be easier than working on multiple funds on your own. Plus, you only need to pay one fee for one fund only. No?
Click to expand...

I completely agree that a single target date fund is a good option for a novice investor who wants to take a “set it and forget it” approach.

Regarding the fees- I haven’t looked into this particular situation, but generally speaking it is more expensive to have a “fund of funds”, which is what this target date fund appears to be based on this post. When you own a fund that owns several funds inside of it, you pay the expense ratio of each of the underlying funds on the portion of the balance invested in them, plus you pay the fee charged by the “umbrella” fund itself on the entire balance.

Please excuse any typos as I’m writing this on my phone. I have not looked up this particular fund, but thought I’d share some general info.
 
Two observations.

First, the success rate (not running out of money) is not significantly different between the 2025 Fund or the 2020 Fund... so go with whichever fund that you are most comfortable with.

Second, the fee difference is negligible in the whole scheme of things... if you had an AA of 42% Total Stock, 18% Total International Stock and 40% Total Bond your expense ratio would be 0.0566% vs 0.13% for the target date funds... for a difference of $73.40 annually per $100,000 invested.... hardly worth fretting about.
 
pb4uski said:
........for a difference of $73.40 annually per $100,000 invested.... hardly worth fretting about.
Click to expand...
A good point. For a novice it is probably better to go for the target fund. For me, the difference pays me about $1000 an hour for my yearly effort.
 
Wow! I am reading all this information and trying hard to digest it! Thank you so much everyone!!

All I've ever done is work and put money into my 403b. I know nothing about it and (ok, don't beat me with a wet noodle! (smile!)) don't necessarily want to know much about it. I am concerned about all the talk of the market getting ready to "tank" again (I know, no one can predict it - I've certainly figured THAT out after reading this wonderful forum for 5 years or so while I was getting ready to retire!) After all those years of saving, I'm hoping to have enough money to live on even if it's another "2008." This is why I am trying to figure out where to put the Vanguard 403b money. I take all advice from the much more knowledgeable people here on the FIRE forum as it's given, with what you know and the best of intentions, knowing it's ultimately my decision, so no worries there (smile!)

So...if the market "tanks," is the difference between the 20-25 and the 20-20 negligible enough that I might was well leave it in the 20-25 where it is currently? I can take a loss - I left everything in in 2008, and friends of mine rebalanced and lost a lot, and haven't recovered. I did well (for me, anyway - I am not in the financial league of many of you here - I was a private school teacher for forty years, and didn't earn much but saved all I could.) But is it that much different now that I'm retired and might actually need the money? Should I be getting more conservative sooner than the fund seems to be taking me by taking me up to 2025? ( sure hope I'm making this somewhat clear, because I'm not sure how to say what I mean - my apologies for my ignorant obtuseness!)
 
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Think of it this way... if you have a 65/35 fund and stocks decline 30% and bonds stand pat if you start out with $100,000 your value declines to $80,500... if you have a 55/45 fund and stocks decline 30% and bonds stand pat if you start out with $100,000 your value declines to $83,500... would one of those bother you a lot more than the other? Keep in mind that presumably in both cases the loss is only a paper loss and there will likely ultimately be a recovery that will get you back to the $100,000.

One thing that you might consider is living off the 403b from now until your pension and SS start because you'll be in a low tax bracket before those income streams start... so you will be pulling out 403b money at lower tax rates than if you pull it out later once you pension and SS are rolling in.
 
That is interesting advice! Thank you!
I've saved for years and years to have a savings account to live off of for the years before I started using my 403b, but you are so right - I might never be in a lower tax bracket.
But...does that mean I'll have less in the 403b to grow for the future? (in interest, assuming it goes up and not down!) My savings account makes not-very-much (!!) so would I "make" more in the interest on the 403b than I'd save on taxes?
 
CindyBlue said:
.... But...does that mean I'll have less in the 403b to grow for the future? (in interest, assuming it goes up and not down!) My savings account makes not-very-much (!!) so would I "make" more in the interest on the 403b than I'd save on taxes?
Click to expand...

No, not necessarily. One thing you could do is to take that withdrawal money that you have taken out to save taxes on and invest it in the same 2025 fund, but in a taxable account rather than the tax deferred 403b..... you save on taxes now compared to later because you are in a low tax bracket now but get the same growth. Then use you taxable account savings for spending as planned. You're just moving money from a tax-deferred pocket to a taxable pocket but saving taxes in the process.

Or better yet, invest some of your taxable account in domestic equities like Total Stock.... where qualified dividends and long-term capital gans can be tax-free if your income is $51,575 or lower (in 2019) or only 15% if your income is higher.... and make corresponding adjustments in your 403b (like shifting to the 2020 Fund)... you can end up the the same asset allocation/risk but more tax-free or low tax income.

Another option is to rather than withdraw the 403b money, do what is called a Roth conversion....you would move the money subject to low taxes from the 403b to a Roth IRA and invest the Roth IRA in the same 2025 fund.... after that you never pay taxes on the growth in the Roth IRA whereas you eventually pay taxes on the growth in the 403b.
 
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CindyBlue, I think you are getting a lot of good , well intentioned advice but in my opinion, you really don't need to change anything. The target fund you are in is a solid choice and requires no action on your part. You could move money around from tax-deferred (your 403b) to taxable to improve your tax situation but in the big picture that is only nibbling at the edges. Trying to do too much may just cause you needless anxiety. You are in reasonably good shape with your pension, SS, and 403b. The enemy of a good plan is insisting on the perfect plan. I would just leave things be and try to relax. You've earned a good retirement now go out and enjoy it.
 
potto0213 said:
CindyBlue, I think you are getting a lot of good , well intentioned advice but in my opinion, you really don't need to change anything. The target fund you are in is a solid choice and requires no action on your part. You could move money around from tax-deferred (your 403b) to taxable to improve your tax situation but in the big picture that is only nibbling at the edges. Trying to do too much may just cause you needless anxiety. You are in reasonably good shape with your pension, SS, and 403b. The enemy of a good plan is insisting on the perfect plan. I would just leave things be and try to relax. You've earned a good retirement now go out and enjoy it.
Click to expand...
+1 Stay put for now and take some time to learn some of the basics about asset allocation and tax strategies like those pb4uski mentioned. These matters are not very complicated but they can be a little daunting until you develop a base level of knowledge. Once you are a comfortable with the basics you can consider things like moving to a couch potato portfolio or Roth conversions. Vanguard offers a number of training resources online and this board offers a ton of info although it may be a little difficult to parse initially. :) But, as potto points out you are in a decent place and can take it slow.
 
potto0213 said:
CindyBlue, I think you are getting a lot of good , well intentioned advice but in my opinion, you really don't need to change anything. The target fund you are in is a solid choice and requires no action on your part. You could move money around from tax-deferred (your 403b) to taxable to improve your tax situation but in the big picture that is only nibbling at the edges. Trying to do too much may just cause you needless anxiety. You are in reasonably good shape with your pension, SS, and 403b. The enemy of a good plan is insisting on the perfect plan. I would just leave things be and try to relax. You've earned a good retirement now go out and enjoy it.
Click to expand...

On the first part, I agree... the difference between the 2025 and 2020 funds are so minor that it is just a matter of preference.

On the second part about tax strategy nibbling at the edges, WADR, we don't know enough about the OP's tax situation or 403b to make a valid conclusion. Depending on her other sources of income she could withdraw or convert up to $51,375 a year before her pension starts and pay little in tax... $4,543 or 8.8% if she had NO other income... a savings of $6,760 compared to paying 22% later. While she probably has other income so her withdrawals/conversions and annual savings would be lower, it still might be more than chump change. Now OTOH, if she'll be in the 12% tax bracket once her pension and SS are online then I agree it would be nibbling at the edges.
 
I just want to chime in that there is "conservative" asset allocations like the 2020 fund
and then there is Conservative with a 2015 fund that is more bonds than stocks
and then there is me... with most of my $ in a 401K stable value fund, CD's, and "high" (a relative term) interest savings accounts and almost no stocks (as a percentage).

You mentioned going through the 2008 crash without getting smacked. As you noted, its a little different watching your account balance fall by 40% while you still have a job earning income vs. when you're relying on your now reduced savings for income.

I recommend starting with assessing your tolerance for risk... If you saw headlines that markets had tanked and your balance was down 40%, would you still sleep well at night?
There are assessment tools such as this one:
https://personal.vanguard.com/us/FundsInvQuestionnaire

Depending on your answers, it might recommend 100% bonds.
Google around and run several... they're free.


The stable value fund I'm in only pays 3%, but it didn't drop a dime in 2008 (or year end 2018). But before you go uber-conservative you need to be aware that safer investments do have inflation risk. It depends on how much savings you have, what pensions/SS/etc will be coming, etc. as to if you can afford less risky investments that might not do well with inflation.
 
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pb4uski said:
No, not necessarily. One thing you could do is to take that withdrawal money that you have taken out to save taxes on and invest it in the same 2025 fund, but in a taxable account rather than the tax deferred 403b..... you save on taxes now compared to later because you are in a low tax bracket now but get the same growth. Then use you taxable account savings for spending as planned. You're just moving money from a tax-deferred pocket to a taxable pocket but saving taxes in the process.

Or better yet, invest some of your taxable account in domestic equities like Total Stock.... where qualified dividends and long-term capital gans can be tax-free if your income is $51,575 or lower (in 2019) or only 15% if your income is higher.... and make corresponding adjustments in your 403b (like shifting to the 2020 Fund)... you can end up the the same asset allocation/risk but more tax-free or low tax income.

Another option is to rather than withdraw the 403b money, do what is called a Roth conversion....you would move the money subject to low taxes from the 403b to a Roth IRA and invest the Roth IRA in the same 2025 fund.... after that you never pay taxes on the growth in the Roth IRA whereas you eventually pay taxes on the growth in the 403b.
Click to expand...

This is an interesting idea!

Question: At what point is my income "low"? Do I have to wait until the end the year when taxes are due to prove I have no income? Because for the next four months I'll have no income at all. After that, I'll have the pension, and 14 months after that, I'll have social security. But those four months of no income - is that enough to have "low" taxes? How is this figured?

I'm sorry to bother you all what are probably really basic questions, and you folks have been so patient with me! Thank you!
 
potto0213 said:
CindyBlue, I think you are getting a lot of good , well intentioned advice but in my opinion, you really don't need to change anything. The target fund you are in is a solid choice and requires no action on your part. You could move money around from tax-deferred (your 403b) to taxable to improve your tax situation but in the big picture that is only nibbling at the edges. Trying to do too much may just cause you needless anxiety. You are in reasonably good shape with your pension, SS, and 403b. The enemy of a good plan is insisting on the perfect plan. I would just leave things be and try to relax. You've earned a good retirement now go out and enjoy it.
Click to expand...

Thanks! I suspect that this is what I want to do, but I'm afraid to "blow it" now that I am actually earning no money. This is scary! There was a great quote in the bogleheads article that mrfeh sent me (thanks, mrfeh!), by Jonathan Clements

"If you want to see the greatest threat to your financial future, go home and take a look in the mirror.”

I don't want to "blow it." I have saved money all my life, and would like to save money on fees etc. too, but if I don't know what I"m doing and, as you mentioned, it would cause so much stress because I don't know what I'm doing, then it might be worth it to just pay the fees, since no one here seems to think they are too high, and just let it be until I educate myself further and I'm willing (if ever) to take the risk of moving the money around.

I don't know what I'd do without you people here on the FIRE forum. You are incredibly helpful, and so generous with your time and expertise and advice. My decisions are my own, and I'm so happy to get all sorts of varying opinions to help me make those decisions.
 
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