I made the dumb mistake of putting a Target Date fund in taxable a very long time ago 🙁 I will likely be working on selling that off over the next 3 or 4 years now that I am retired, but in the meantime, I was wondering if someone has advice on the best way of modeling a Target date fund in taxable, in Pralana. The VTTVX fund that starts out in 2025 at around 50% stock and 50% bonds, then decreases stocks to 30% stock and 70% bonds in 2032 in a linear fashion. Currently I have been using Mode 2 asset names: US stocks, US small caps, International Stock, Taxable Bonds, and Muni bonds in the Taxable account. Maybe one would add three more (VTTVX bonds, VTTVX stocks, VTTVX international stocks), then on the existing US stocks, International stock, Taxable Bonds reduce those down by the VTTVX break outs. Pralana allows different time periods... then go into those 8 and set them up to reflect VTTVX adjusting the stocks and bonds over those 7 years, 2026,2027,2028,2029,2030,2031,2032.
This adds a lot of complexity but I am not sure how else to do that. It is kind of difficult to plan Roth conversions because that Target date fund is "doing its own rebalancing" causing dividends and capital gains to be produced beyond my control. I would use that fund for living expenses to spend it down in taxable and paying for Roth conversions.
If I break them out like that Pralana could also be adjusted each year if I liquidate the VTTVX down. It undergoes a little bit of "natural reduction" now because I just harvest the dividends and capital gains it throws off into my cash account (no reinvestment), I have been doing that for 4 or 5 years now.
If misery loves company, I too made the same dumb mistake. (Your words not mine.) 🙂 When I had no money I decided to store my meager short term savings in VSMGX (Vanguard Lifestrategy), not realizing that 15 years later it would be large, and I'd be on ACA, where every dollar of dividend and gain lowers my subsidy!
You could model it several ways: With mode2, you could make it its own asset and manually glide down its overall expected returns and volatility (doing calculations outside Pralana). Or--simpler I think--just break it down into its components and simulate its glide path over the next four years in terms of Stocks and Bonds. E.g. 2026 50%/50%; 2027 47%/53%; 2028 44%/56%; 2029 41% /59%; 2030 38%/62%. (I'm assuming VTTVX is your whole taxable account, otherwise you'd need to work out the overall averages across your whole taxable account like I do.)
This has the advantage of simplicity, with only needing to worry about two assets. With my VSGMX I lump together all the equity as "stocks" and all the bonds as "bonds", regardless of international or tips or whatever.
To be honest, remembering that Pralana is a long term planning tool, you could probably get away with just entering its average AA for the four years you're going to hold it, 44%, without a glide path.
Thank you Jonathon, I have been thinking about simplifying the modeling too. One fortunate thing about this is that VTTVX is only about 20% of my assets in taxable, so I would need to lump all of the other stuff together to blend it properly. I am past 65 and now on Medicare, so it is not an ACA issue but it is an IRMAA issue, and a NIIT issue (smaller issue).
I will do some playing around with it. I have done some modeling using tax software and have determined that very reasonable (tax cost + IRMAA) can be obtained by doing a reduction of 1/2 of VTTVX in 2026, than an additional 1/2 of what is left in 2027, then just get rid of the rest of it in 2028 in conjunction with Roth conversions because of the low income years. Using something like the simplified method might be good enough in Pralana. I can maybe optimize it a little further using Spec ID to get rid of the lowest gain lots first.
I want to maximize the opportunity of these years before Social Security kicks in.
