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Subject:  Re: Defined benefit/purchase service time ? Date:  3/30/2008  6:13 PM
Author:  pauleckler Number:  62065 of 88772

Welcome to the board, kimmmm.

A key question is what about inflation from your Arizona state pension. If the payment from that and Social Security are both cost of living adjusted, they could be an excellent program. But many pensions pay a fixed amount for life. Then covering rising cost of living becomes very important. For that equity investments are often recommended because they tend to give better average returns than do fixed incomes.

Vanguard is a quality company, but if you need inflation protection your problem is that in 2020 and beyond your money will be mostly in bonds. So you will need a strategy for growth after that. Reinvesting in another fund is possible, but some deal with this problem by selecting longer term funds, say a 2040 fund--to maintain a higher equity position.

The advantage of the 2020 funds (or similar Freedom funds) is simplicity. They adjust your allocation automatically as you get closer to the target retirement date. You can do the same thing yourself by selecting your own mutual funds, but then the transfers from one fund type to the other might be taxable (although you hope they will mostly be transfers of capital gains).

So that is just a few things to think about. Make sure you plan for inflation during retirement. You will likely be retired over 30 years and costs will probably double at least once and maybe more while you are retired.
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