L Fund: Retirement date vs. life expectancy

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Q. I have read Q&As on your site that refers to using one’s life expectancy as basis for selecting a particular L Fund. Per the Thrift Savings Plan site, L Fund investment mixes (and recommended strategy for selecting) are based on the time horizon vis-a-vis one’s projected retirement date — hopefully a different date than one’s life expectancy. Could you please explain the reference to life expectancy?

A. Using your life expectancy to select an L Fund, rather than your retirement date, is my recommendation based on years of working with clients who are trying to safely maximize the standard of living they can extract from their resources. Using your retirement date might put you into an extremely conservative asset allocation with many years to go. While this will insulate you from short-term losses, it may also rob you of the growth needed to support spending later in life.

Ultimately, either method is a shot in the dark. The right way to do it involves diligent analysis and careful management as you go.

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