If one maxes out his Roth IRA starting from age 26, investing only into a vanguard target 2045 (lifecycle) fund, what amount can he expect to withdraw at retirement at age 59?

I did a quick check using a compound interest calculator: assuming a 5+k contribution is made annually, with 8% interest, the future value turned out to be 930k. How close is this number to the expected number for a lifecycle fund held for 33 years?

  • 3
    If only we could foretell the future...
    – littleadv
    Apr 14, 2013 at 4:57
  • 3
    Did you take into account inflation, say on the average of 2-3% a year? I presume when you say "interest" you mean rate-of-return, right? Also, you have to take into account that a lifecycle fund rebalances to less risky investments as it approaches the target date. You could get an estimate of the rebalanced allocation by looking at a fund with a shorter horizon, e.g. 2025. It's still just an estimate, though. Apr 14, 2013 at 15:01

1 Answer 1


I don't think you have your head in the right space - you seem to be thinking of these lifecycle funds like they're an annuity or a pension, but they're not. They're an investment.

Specifically, they're a mutual fund that will invest in a collection of other mutual funds, which in turn invest in stock and bonds. Stocks go up, and stocks go down. Bonds go up, and bonds go down. How much you'll have in this fund next year is unknowable, much less 32 years from now.

What you can know, is that saving regularly over the next 32 years and investing it in a reasonable, and diversified way in a tax sheltered account like that Roth will mean you have a nice chunk of change sitting there when you retire.

The lifecycle funds exist to help you with that "reasonable" and "diversified" bit.They're meant to be one stop shopping for a retirement portfolio. They put your money into a diversified portfolio, then "age" the portfolio allocations over time to make it go from a high risk, (potentially) high reward allocation now to a lower risk, lower reward portfolio as you approach retirement. The idea is is that you want to shoot for making lots of money now, but when you're older, you want to focus more on keeping the money you have.

Incidentally, kudos for getting into seriously saving for retirement when you're young. One of the biggest positive effects you can have on how much you retire with is simply time. The more time your money can sit there, the better. At 26, if you're putting away 10 percent into a Roth, you're doing just fine. If that 5k is more than 10 percent, you'll do better than fine. (That's a rule of thumb, but it's based on a lot of things I've read where people have gamed out various scenarios, as well as my own, cruder calculations I've done in the past)

  • +1 for a very nice answer. I just edited the answer to insert a missing word in the first sentence of the second paragraph; please delete if you do not agree with the change. Apr 17, 2013 at 15:00
  • " If that 5k is more than 10 percent, you'll do better than fine." Why? Either way, it's 5k. I always see % of current earnings touted as what matters, but what matters really is the quantity of money invested, whether it is 1% or 99% of your current earnings. I would much rather invest 1% of a $200k salary than 30% of a $20k salary.
    – Chelonian
    Apr 17, 2013 at 16:30
  • Your third paragraph removes the sense of risk completely. You can't know you will have a "nice chunk of change sitting there when you retire." If you could know this, you wouldn't have a full range of risk.
    – Chelonian
    Apr 17, 2013 at 16:31
  • +1 There really is no way to know what will happen in future years. Additionally, any historical figures you may have read about on the performance of the market in the last few decades should be discounted given that dividend yields (historically roughly have of the total return of the market) have fallen significantly.
    – JAGAnalyst
    Apr 17, 2013 at 19:49
  • @JAGAnalyst -- exactly. So, what do we know? We know that spending less than you make is good. We know that saving the difference is good. And we know, with somewhat less confidence, that investing those savings prudently and diversely, over the long run, tends to be good.
    – Patches
    Apr 18, 2013 at 19:10

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