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Vanguard Retirement Payout Funds
Old 09-28-2007, 07:44 AM   #1
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Vanguard Retirement Payout Funds

Word coming out on new "pension like" funds of funds to be managed by Gus Sauter's group. Will seek automatic monthly payouts at 3,5 and 7% payout rates.

http://insurancenewsnet.com/article....ed0030b844acb3
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Old 09-28-2007, 08:01 AM   #2
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Just saw those, too.

Feels like a balanced fund which pays out "income" using sell-offs, dividends, and gains to sustain the promised income distribution percentage. They do the math and the rebalancing for you.

I'd guess they will dig into principle as needed to keep up the payout percentage in a prolonged bear market -- especially for that 7% product.

Except for eliminating some of the do-it-yourself chores, I can't detect much of a difference from the usual diversified portfolio/rebalancing/SWR strategy often followed here. Might be a nice tidy package for those who don't want the bother and can give up some flexibility.

Anyone have more insight?
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Old 09-28-2007, 08:21 AM   #3
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Justin - Good summary.

Although I am still happy with self managing, I do believe this offers a new spot between turning your portfolio over to a manager or buying an annuity. For those who want less ongoing managing but want to maintain some control this could be very attractive as you can buy or sell like any other mutual fund. Gives you liquidity, pretty predictable results and a very reasonable cost.
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Old 09-28-2007, 08:36 AM   #4
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Its like an annuity without the guarantee. Good marketing idea, butits not clear how this is any different than, say, the STAR fund.
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Old 09-28-2007, 08:37 AM   #5
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Justin - Good summary.
It wasn't me!

I did find this interesting:

"Vanguard Managed Payout Funds will feature an estimated expense ratio of 0.34%. The funds will not charge a sales commission or a 12b-1 fee. Investors may redeem or exchange shares of the funds at any time without charge or penalty, subject to Vanguard frequent-trading policy limits."

Good to see they are keeping the low cost investing dream alive.
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Old 09-28-2007, 08:41 AM   #6
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The management fee is 34 basis points, so if one were to select the 3% inflation-adjusted payout, the cost would be about 10% of your annual draw - a significant price to pay (IMO) for having Vanguard do what you could largely do yourself.

According to the footnote, the payout (in dollars) could theoretically drop depending upon performance.

* A fund shareholder will receive a monthly cash distribution equal to the fund's monthly distribution per share times the number of shares owned on the record date. As detailed in the prospectus, the monthly distribution per share is based on the following formula: approximately 1/12th of the fund's annual distribution rate (3%, 5%, or 7%) multiplied by the fund's average NAV per share over the previous three calendar years.
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Old 09-28-2007, 08:43 AM   #7
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Hard to imagine someone doing well with the 7% payout in a prolonged Ursa Major market. Seems like a great way to run out of money.

I suppose you could approximate a 4% payout by putting half in the 3% and half in the 5%? And while 0.34% isn't horrible, I suspect most of us could do it for 0.00% seeing as this is an expense above and beyond the expense of the underlying funds. (I think?)
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Old 09-28-2007, 08:49 AM   #8
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The management fee is 34 basis points, so if one were to select the 3% inflation-adjusted payout, the cost would be about 10% of your annual draw - a significant price to pay (IMO) for having Vanguard do what you could largely do yourself..
True, but we're all paying something in the range of 20 basis points just for the privilege of investing. An advisor would charge 1 - 1.5% just to do the housekeeping, and the expense ratio would be added on to that. So in the big picture it doesn't seem unreasonable to me.

It's not as inexpensive as doing it yourself, but having someone else doing the trimming, distributing, reporting, and rebalancing is not a bad deal for 14 basis point difference.

My major question is the loss of flexibility. For example, I am leaning toward burning deep into my cash and bonds before tapping my stocks. In this scenario, I'd guess they sell off proportionate to the allocations of the fund. I'll look forward to learning more.
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Old 09-28-2007, 09:00 AM   #9
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Hmmm - take 5% of my Target Retirement 2015 balance each 12/31 and put into Prime MM/checking option each following January. Replenish local bank/ATM account as necessary. Just started this in 2006.

Will be interesting to see this new stuff come out and how it compares. Plus how they handle RMD(mine shows up in 6 years) since my TR is trad IRA. Do have some Roth, but not much on the side for old age.

More than one way to skin a cat!

heh heh heh - with MM relatively high and local checking relatively low interest I try to keep local balance low but not too skinflinty.
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Old 09-28-2007, 09:18 AM   #10
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True, but we're all paying something in the range of 20 basis points just for the privilege of investing. An advisor would charge 1 - 1.5% just to do the housekeeping, and the expense ratio would be added on to that. So in the big picture it doesn't seem unreasonable to me.

It's not as inexpensive as doing it yourself, but having someone else doing the trimming, distributing, reporting, and rebalancing is not a bad deal for 14 basis point difference.
It wasn't clear to me whether or not the 34 basis points included the ER of the underlying funds. Also, by using Admiral Funds, the ER is closer to 10 basis points than 20.
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Old 09-28-2007, 09:21 AM   #11
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I'd like to see them figure out the 7% number in a bad market...........
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Old 09-28-2007, 10:34 AM   #12
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Commodities are now 'in' - hmmm - naturally they have a thread going on these new proposals at the Bogleheads forum.

Love to have been a fly on the wall when Vanguard did the background research as to what to include and how to structure these funds.

In future - it will be interesting to see/read how the 'financial guru's' of the current era receive these proposed funds.

Stay tuned. Don't go away!

heh heh heh - Gonna have to get my Curmudgeon Certificate suitibly framed and get going on grumpy - all this new fangled stuff since 1976 - index funds, balanced indexes, lifestrategy, tips/inflation protected securities, lifecycle/target retirement - crap I had trouble with The Beach Boys and The Beatles. Finally digested the Beach Boys and learned to razz back the Brit engineers who called me a Provincial.
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Old 09-28-2007, 10:45 AM   #13
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I find this discussion and these new funds very interesting. I really don't want to do it all by myself, but I also don't want to pay big fees to anyone to do it for me either. I have a pension and will shortly have s/s so I will not take withdrawals for years. 3% would work fine for me. Half in 3% and half in 5% might be perfect.
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Old 09-28-2007, 10:51 AM   #14
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As Unclemick mentioned this is being discussed over there. Poster posted the "fun stuff", asset allocation guidelines from prospectus:

http://www.diehards.org/forum/viewto...mrr=1190993802
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Old 09-28-2007, 11:06 AM   #15
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As Unclemick mentioned this is being discussed over there. Poster posted the "fun stuff", asset allocation guidelines from prospectus:

Bogleheads :: View topic - new VG fund

Is Vanguard "hoping" noone will take the 7%? Because to me, they are not arbitraging the risk enough.....................
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Old 09-28-2007, 11:43 AM   #16
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Here is the prospectus. I haven't gotten all the way through it yet, but it has an appeal to someone like me who would like to have some annuity income without annuity prices and/or all the associated work managing your portfolio.
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Old 09-28-2007, 11:47 AM   #17
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Hmmm - take 5% of my Target Retirement 2015 balance each 12/31 and put into Prime MM/checking option each following January. Replenish local bank/ATM account as necessary.
Looks like this works just as well to me. But will keep an open mind. Below is Fido's version.

Fidelity Investments
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Old 09-28-2007, 02:57 PM   #18
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I could see using it in my dotage when I no longer feel able to manage my own investing.

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Old 09-28-2007, 03:15 PM   #19
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Looks like this works just as well to me. But will keep an open mind. Below is Fido's version.

Fidelity Investments
Fido's version is designed to completely deplete the account down to zero according to some "target" final date, so it's designed to be (theoretically) possible to outlive it.

Currently, their longest-term plans "deplete" in 2036, so anyone who has a realistic chance of living at least 30 more years runs the risk of outliving all their retirement savings. Definitely not something for younger retirees as designed...
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Old 09-28-2007, 09:43 PM   #20
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Has anybody ever looked at ADVDX, I have owned it for about three years. They pay dividend monthly and a larger sum at the end of each qtr. For about three years, my return has been about 12%@yr (dividend payout). I am pretty much even on the fund price (even on capital appreciation). It is classified a Equity-Income. It is somewhat controversial on M*. Using Fido calc on IncomeReplacement Fund 2036, investing $1,000,000, the mothly income is about $4802/mo and your balance will end at 0 at yr. 2036. It looks like ADVDX is a better deal (assuming that it continues to perform this way). The dividend is a qualified div., which is taxed a lower rate.
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