Author Topic: Retirement Account  (Read 2570 times)

gebraset

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Retirement Account
« on: September 23, 2013, 11:55:26 AM »
Hello all! I'm new to the forum and to the Mustachian way of life to be honest. Generally, my wife and I are incredibly frugal in terms of our living requirements, so I guess we have been practicing a lot of what MMM preches through his blog.

My question comes in the form of retirement investment. Currently, we have a little under $1000 each in a Roth IRA account within a target retirement 2060 account. At that time, we will be about 68-72 years old or so (currently I am 21 and my wife is 22). We are now maxing out the account for each of us starting at the beggining of October, $5500 /year, and am starting to wonder about exchanging the shares we have in the 2060 account to a 2050 account. Granted, I would love to retire earlier, but am I going to miss out on some special stock that the 2060 account holds over the 2050 account? Would it be sensible to have the Roth IRA narrow down its changes in terms of investment right when we turn 60?

Pretty much, I'm caught in between changing our target retirement 2060 account to a 2050 account and am wondering what other memebers here might do.

Thanks for the insight in advance!

matchewed

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Re: Retirement Account
« Reply #1 on: September 23, 2013, 12:12:57 PM »
To be honest tomato to-mah-to situation. The difference between those two funds will probably be a small difference between bond vs. stock ratio as it gets closer to the target date. But I do have to say that depending on the actual funds and who manages it they have different ratios to start with. You need to research what the make up of the individual funds are and determine if they fit your financial goals.

To be honest target accounts are generally higher expense for not wanting to manage your own asset allocation for your goals. If you're okay with that extra fee for setting and forgetting cool, I'm more likely to pay less for the extra 5 minutes of work to maintain my asset allocation.

madage

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Re: Retirement Account
« Reply #2 on: September 23, 2013, 02:06:31 PM »

To be honest target accounts are generally higher expense for not wanting to manage your own asset allocation for your goals. If you're okay with that extra fee for setting and forgetting cool, I'm more likely to pay less for the extra 5 minutes of work to maintain my asset allocation.

A very good point. With only $1,000 in each IRA, however, OP probably can't do better than the Vanguard Target funds right now as most Vanguard funds have a $3,000 minimum initial contribution. I agree 100% with matchewed on the minimal difference between the 2050 and 2060. Stuffing as much as possible as quickly as possible into the IRA's is much more important for long-term growth.

Stache In Training

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Re: Retirement Account
« Reply #3 on: September 23, 2013, 11:22:45 PM »
I like the target date retirement funds as a set-and-forget for my retirement funds (though I have some REIT in my retirement too), and I'll focus more of my time and energy into my early retirement funds.  If that works for you, then good.  Or if you want more control and less expenses as matchewed suggests, that's good too.  Yes, target date retirement funds are a bit more expensive, but if you choose vanguard, it's still going to be much lower than anywhere else, and to me, the extra .05% was worth it to me, to just never have to think or worry about.

However, to answer your original question, the main difference between the 2050, 2055, 2060, and etc., is what year it starts selling the stocks, and moving to bonds.  I.e. the earlier the year arrives, the earlier the fund becomes conservative.  So no, you won't be missing out on a certain fund or stock in one TDR fund, as opposed to the other. In fact, if you look at the holdings, they are the same index funds.  The only thing that changes, is the asset allocation, depending on the year. 

FYI, a common misconception is that you can't touch the money until that date.  Not true.  Once you can legally touch the money, because you've reached retirement age, you can touch it, no matter what date the fund says. Just wanted to make sure that was said.

So what I did was choose one year for my wife, and the next option back for me.  This way hers will start becoming more conservative 5 years before mine does.  You could even choose more of a difference if you wanted.  I just figure this way, one of ours will be staying more risky for 5 years longer.  So if the market crashes 10 years before we reach retirement age.  I figure we'll get a slight advantage, because one fund will not have lost as much value, and the other will be able to ride the recovery a bit longer.  But you never know, we could be screwed by that, because you never know when the crashes are coming, and depending on timing, we may have ended up with more or less money if we had set both of our dates back, or forward.  But I figured a staggered approach made the most sense, as you'll never be able to tell the future.

gebraset

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Re: Retirement Account
« Reply #4 on: September 24, 2013, 06:04:59 AM »
Understood to the point made, and I appreciate the feedback! I probably was going a little to deep with it when I am considering something so minuscule. Either way, I do like the set it and forget it aspect of managing my retirement assets. Shortly I would like to get into an index fund, but keep it separate from my retirement account.

Also, thank you for the clarification for being able to withdraw the money upon hitting age 59 1/2, and not having to wait until 2060 or whenever. Great to know!