Changes coming to Vanguard Managed Payout funds:

[frank2009]

I know that some members hold shares in these funds or are interested in them:

https://personal.vanguard.com/us/insights/article/fund-announcement-w-10162013

Key points:

-Distribution and growth funds to be merged into the growth and distribution fund.

-The new fund will have a 4% withdrawal rate.

-changes to occur in early 2014.

 

[GrayHare]

How is that 4% payout handled for tax purposes? On the 1099 for the year, does that payout show as some combination of capital gains and dividends?

 

[tomz]

How is that 4% payout handled for tax purposes? On the 1099 for the year, does that payout show as some combination of capital gains and dividends?

I have some money in Managed Payout Growth and Dist - My 1099-DIV for 2012 shows 10 % in Box 1b - Qualified Dividends and 90% in Box 3 - Non Dividend Distributions. The total is in box 1a - ordinary dividends. In Turbo Tax, it all shows up as ordinary dividends.

 

[GrayHare]

Interesting, thanks. Does that imply that 90% of that fund's payout is a return of capital, that is, simply a return of the money you had put it? Is that a common % for managed funds?

 

[foxfirev5]

After watching these funds for several years I have come to the conclusion that they offer very little I can't get with my AA of index funds. This restructuring into a 4% payout fund confirms my thoughts. No need to pay an extra 20-30 bps to take a periodic withdrawal.

 

[frank2009]

Yes, I agree with you foxfirev5. A steady 4% payout can be accomplished about as well with a good lower expensed, balanced fund. Maybe some people like the idea of a monthly check with a known value? The amount of the check remains the same through the calendar year.

 

[samclem]

After watching these funds for several years I have come to the conclusion that they offer very little I can't get with my AA of index funds. This restructuring into a 4% payout fund confirms my thoughts. No need to pay an extra 20-30 bps to take a periodic withdrawal.

For me and for many people here, a DIY approach using index funds to achieve your desired AA and then taking your withdrawals every year makes more sense than investing in these funds. But for others who may draw some emotional comfort from active asset allocation management (and wil therefore stick with the plan rather than lose their nerve and sell when things get gloomy) and who just want a monthly check, these funds could be a good approach. At the very least, the "4% of annual account balance" approach eliminates the potential of entirely running out of money and allows a portfolio to recover from some down years.

For the right customer, these funds could be a pretty darn good answer, especially when we look at some of the other cr*p in which people are invested, and the fees they are paying to be invested in those ways.

 

[frank2009]

I do think that a consolidation of assets may allow Vanguard to lower the expense ratio. Just speculation on my part

 

[tomz]

I invested in this fund when it first came out just before I retired. It was nice to see the monthly dividend and provided a sense of security. However, now that I have been retired for 5 years, I will probably sell it next year. I no longer need that sense of security because I have a much better handle on my expenses. The expense ratio is .43 and considering that all my other Vanguard funds are less than .2, I don't see any reason to keep it.