Vanguard Retirement Fund

[Deleted User]

Hi all,

I wondered if anyone could explain how the Vanguard Retirement Fund works? I am 36 and hope to retire early. I have recently started contributing to the Vanguard Target Retirement 2040 Fund and wondering if this is the right choice for me. I intend to contribute to the fund in the long term. I notice that the split between equity and bonds decreases as the target retirement year approaches. Is there a benefit to the increased bond ratio as time goes on? Thank you!

Alexland

They are basically VLS funds that gradually move into bonds to reduce volatility to get more certainty of outcome until you are 50/50 at the target date. Then further derisk if you stay invested beyond that.
So you need to ask yourself if you are happy with the ratio you start at and if you really want that ratio at the end which might depend on if you expect to buy an annuity or continue having investment risk into retirement under a drawdown strategy.
I would want to be more conservative than VTR if buying an annuity and more adventurous if going into drawdown. Your ideal profiling into retirement will also depend what you are likely to do with the 25% tax free. As such if you have an idea of what you want then you could profile the asset allocation better for your needs than the VTR one size fits all. If not then it's OK for now.

[Deleted User]

Thank you, this is really helpful. I haven't thought much about it but do like the idea of having a regulated income with an annuity. However, I think going into drawdown might suit my investment strategy better if it means continuing to invest the money (which, presumably the annuity doesn't).

I have read some FIRE literature that recommends withdrawing an amount of your investment/ savings pot (say, 4%) each year during  retirement, and this allows the rest of the money to continue to grow. This sounds akin to drawdown but I may be wrong!

Thrugelmir

Deleted_User said:

Is there a benefit to the increased bond ratio as time goes on? 

Much depends on both your risk appetite and financial ability to with withstand market volatility. I wouldn't regard the funds as ones that are likely to surprise you with an unexpected windfall. More of a cautious secure way of building a pot. Over a time frame of less than 20 years. It's the level of contributions that you make sooner rather than later that will will determine the final outcome. 

Alexland

Deleted_User said:

Thank you, this is really helpful. I haven't thought much about it but do like the idea of having a regulated income with an annuity. However, I think going into drawdown might suit my investment strategy better if it means continuing to invest the money (which, presumably the annuity doesn't).

An annuity sounds great until you see how expensive they are!  But then you need a lot of money to generate a good income in drawdown particularly if you want to retire early. In drawdown you still need a healthy allocation to equities to grow the assets and income to cover long term inflation but not so much that you could get into a sequence of return issue.

I have read some FIRE literature that recommends withdrawing an amount of your investment/ savings pot (say, 4%) each year during  retirement, and this allows the rest of the money to continue to grow.

Withdrawal rates will depend on how early you retire, market valuations at retirement and your asset allocation in retirement. There is no 4% rule. I hope to retire early with a high proportion of equities but would still only draw less than 3% pa.

dunstonh

 I haven't thought much about it but do like the idea of having a regulated income with an annuity. 

You need to start thinking about and possibly even consider that annuities may not exist when you get there.  The annuity market has shrunk massively and the number of providers offering them is much reduced.    Times change and it's possible when interest rates rise again that annuities will become more attractive but you need to plan on the basis of drawdown at your age.

Albermarle

It is a popular topic.
Vanguard Life Strategy vs Target Retirement — MoneySavingExpert Forum
Vanguard SIPP query - target retirement fund / lifestrategy fund — MoneySavingExpert Forum

[Deleted User]

Thrugelmir said:

Deleted_User said:

Is there a benefit to the increased bond ratio as time goes on? 

Much depends on both your risk appetite and financial ability to with withstand market volatility. I wouldn't regard the funds as ones that are likely to surprise you with an unexpected windfall. More of a cautious secure way of building a pot. Over a time frame of less than 20 years. It's the level of contributions that you make sooner rather than later that will will determine the final outcome. 

Really appreciate this, and yes - it's the contributions sooner rather than later that are most important. I think, considering I'll be in it for the long haul, both my risk appetite and ability to withstand market volatility is high. I opened a Vanguard account not long before the pandemic hit and there was a time when my overall percentage was around -65%. This was quite shocking, but it has recovered well. Over the course of at least a decade, I'd imagine it to do the same and then I might consider minimising the risk as retirement approaches. I wonder if there is a less cautious fund than I have at the moment...

[Deleted User]

Alexland said:

Deleted_User said:

Thank you, this is really helpful. I haven't thought much about it but do like the idea of having a regulated income with an annuity. However, I think going into drawdown might suit my investment strategy better if it means continuing to invest the money (which, presumably the annuity doesn't).

An annuity sounds great until you see how expensive they are!  But then you need a lot of money to generate a good income in drawdown particularly if you want to retire early. In drawdown you still need a healthy allocation to equities to grow the assets and income to cover long term inflation but not so much that you could get into a sequence of return issue.

I have read some FIRE literature that recommends withdrawing an amount of your investment/ savings pot (say, 4%) each year during  retirement, and this allows the rest of the money to continue to grow.

Withdrawal rates will depend on how early you retire, market valuations at retirement and your asset allocation in retirement. There is no 4% rule. I hope to retire early with a high proportion of equities but would still only draw less than 3% pa.

Thank you. Yes, annuities are less and less appealing! I didn't know it would be possible to draw less than 3% pa to have an income to live on! 

[Deleted User]

dunstonh said:

 I haven't thought much about it but do like the idea of having a regulated income with an annuity. 

You need to start thinking about and possibly even consider that annuities may not exist when you get there.  The annuity market has shrunk massively and the number of providers offering them is much reduced.    Times change and it's possible when interest rates rise again that annuities will become more attractive but you need to plan on the basis of drawdown at your age.

You're right. Drawdown appeals to me more anyway, especially if there are significant costs involved in annuities. 

Alexland

Deleted_User said:
I didn't know it would be possible to draw less than 3% pa to have an income to live on! 

Depends how much you contribute, your investment returns above inflation, how early you start, etc.