Vanguard Retirement Payout Funds

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?
 
Middle Ground

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.
 
Its like an annuity without the guarantee. Good marketing idea, butits not clear how this is any different than, say, the STAR fund.
 
WilliamG said:
Justin - Good summary.
Click to expand...

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.
 
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.
 
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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FIRE'd@51 said:
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..
Click to expand...

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.
 
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.
 
Rich_in_Tampa said:
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.
Click to expand...

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.
 
I'd like to see them figure out the 7% number in a bad market...........:)
 
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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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.
 
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.
 
I could see using it in my dotage when I no longer feel able to manage my own investing.

DD
 
Dawg52 said:
Looks like this works just as well to me. But will keep an open mind. Below is Fido's version.

Fidelity Investments
Click to expand...
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...
 
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.
 
Someone said annuity. I was thinking self-funded pension fund without any insurance.

They have 3,5, and 7% payout fund options. It does strike a nice balance between managing the assets for a payout (kinda like a pension), yet the funds are also available if you need to take more for an emergency.


It is interesting. There are probably even more options that will be made available over the next several years.
 
Rich, why are you thinking to burn through cash and bonds first and then stocks? Why not try to maintain target AA?
 
Darryl said:
Rich, why are you thinking to burn through cash and bonds first and then stocks? Why not try to maintain target AA?
Click to expand...

This, for example:
Spitzer and Singh, Is Rebalancing a Portfolio During
Retirement Necessary? J of Financial Planning, June 2007

Executive Summary:
• The study investigates six different allocations of stock and five different harvesting rules, only one of which rebalances the portfolio annually. The methods are tested using five different withdrawals rates (3–7 percent). The results look at shortfalls over 30 year s, as well as shorter periods.

• The study uses two analysis methods: bootstrap and historical inflation-adjusted rates of return in their true temporal order. Both methods find that rebalancing provides no significant protection on por tfolio longevity, and this holds for all withdrawal periods. In fact, in some cases, rebalancing increases the number of shortfalls.

• Withdrawing bonds first, over stocks, performs the best of all the methods, though the resulting stock-heavy portfolio may make some investors uneasy. This method also is most apt to leave a larger remaining balance at the end of 30 years, while rebalancing leaves the smallest amount.

• Withdrawing stocks first leaves more shortfalls than withdrawing low first or high first.

• Confirming previous research, the larger the propor tion of stocks to bonds, the longer the portfolio lasts; the higher the withdrawal rate, the more shortfalls.

• The results suggest that the use of life- cycle funds or a life-cycle strategy that decreases stock proportions as one grows older needs empirical justification.
​
Lucia has a similar philosophy. But I wouldn't take it too literally; if stocks are coming off a great year, I would probably sweep some earnings into cash, though only enough to bring stocks back down to what would still be a good year's balance. Otherwise you end up in a nearly all-stock situation after 10-1 years (which may or may not be OK).
 
Rich, Thanks and Wow. Just a knucklehead trying to get by. Layman thoughts if stocks deliver best overall returms most portfolio's most of the time will do better with more stocks. Unfortunately for us individuals the fickle finger of fate can #%@ us if we make choices in the wrong year. So it seems continuing on the Layman path that a reasonable hedge would be to draw off stocks following an up year to hold closer or return to AA and to draw off bonds/cash in down years to do the same and or allow stocks to rebound. It appears I may have oversimplified or as occasionally happens just blown it.
Any suggested reading to get my mind right?
By the way many thanks to the folks that promoted Four Pillars, the millionaire next door, work less live more, the perfect business, your money or your life and the richest man in babylon (oops that last one was me).
 
Sounds like virtually a no-brainer to me. Takes all of the work out of the equation:

When to rebalance?
Where to generate the distributions from?
Which asset classes might be over/undervalued at any given time?

Their list of asset classes is also quite impressive - adding both commodities and market-neutral. Reading the prospectus, they don't define what % will be allocated to each class - just a range for each class. So once again, there will be some reliance on active management to determine how to place money.

My current plan (not implemented yet) has 16 asset classes...yes I know...way too much slice and dice. If the total expense ratio is really going to be 0.34%, I highly doubt I could keep the expenses below the 0.34% after ETF trading fees and the underlying expense ratios.

So it seems to me that they are covering all the bases:

1) Well diversified portfolio - including commodities and market-neutral
2) Low costs
3) Active management to allocate resources (lets hope the active management knows what they're doing)
4) Monthly distributions that are guaranteed for a given year
5) With the monthly distributions, the additional money that would typically be taken out and placed in a MM (as in a usual DIY case) would stay at work in the fund. Not an issue if you want to rebalance/fund your living expenses 12 times/year
6) The stated objectives of the funds (at least the 3% and 5% funds) are to at least maintain principal and purchasing power over time

Put your money in, let them invest it at low cost, and get a known monthly check for a whole year. To be reset at a new level each year, based on performance.

Couldn't be any easier. And it is Vanguard, after all.

Still, all that said, I think I'll still DCA in over the next number of years. I'd hate to take the big plunge with markets at all time highs virtually across the world...
 
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