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Asking about the Vanguard Managed Payout Fund?
Old 02-07-2014, 07:55 AM   #1
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Asking about the Vanguard Managed Payout Fund?

I'm new here, so I will apologize in advance if I am missing obvious things when asking about the Vanguard Managed Payout Fund.

The wife and two Financial Advisors have pointed me toward various Annuities to create an income stream to supplement our two Social Security pensions.

To my rookie way of looking at this, doesn't the Vanguard Managed Payout Fund do the same thing as an annuity, except that the Vanguard fund is an investment vehicle.

I see that the VMPF has an expense ratio of .40 or so.... I've read that the annuities are usually triple that....

I think I read that the Vanguard Target Date retirement funds all end up in these payout funds a certain number of years after maturity... not sure

Please teach me on this...

Thanks in advance,

JerryinPA
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Old 02-07-2014, 09:28 AM   #2
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The way I look at Vanguard's Managed Payout funds is that it's just a plain vanilla balanced fund with an associated distribution scheme. You could do a lot worse than this but you probably could also do slightly better if you can be a more hands on investor.

This fund is probably head and shoulders above an annuity but it may be quite different how the annuity is structured. The annuity may be just a plain ole' (SPIA) where you get guaranteed fixed monthly payments for some period or over your lifetime. The annuity also could be a holding vehicle for a vast range of mutual funds wrapped up in a life insurance bundle. For what it's worth annuities will always have higher fees than equivalent mutual funds to pay for overhead, life insurance and (Advisor and company) profits.

My first question to ask is - What's the surrender charge of an annuity ? That gives you some idea of the Advisor and company profits that you need pay up front.

If you just have to buy an annuity, I suggest you buy it through Vanguard. Their rates are about as fair as you get.
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Old 02-07-2014, 09:51 AM   #3
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There have been previous threads on Vanguard's managed payout fund. I contributed my thoughts on the subject here:

http://www.early-retirement.org/foru...nds-66214.html

If I rewrote my earlier comments to reflect my current thinking, I would be less negative about the Market Neutral Fund. I still think it can't be counted on to cushion against losses in a repeat of the 2008 stock market crash, but with last year's good performance it is now beating its T-bill benchmark in all reporting periods. So I guess there is some merit to holding the Market Neutral Fund instead of owning T-bills directly.

The important point for you, based on the question you're asking, is that the Managed Payout Fund isn't really comparable to an annuity in which you give up all claim to your principal in exchange for a guaranteed monthly check. Rather, it's like holding a traditional balanced portfolio and deciding annually on a withdrawal rate that hopefully gives you enough income to pay your bills without incurring the danger of depleting your principal. The gimmick is that it's the experts at Vanguard, not you, who make the decision on the monthly payout. I would say that makes it a sound, objective decision, but it's not a decision that factors your need for retirement income into consideration. If the fund does poorly one year, Vanguard can and will reduce the monthly payout next year. If the cut is too much and you can no longer pay your bills, it's up to you to decide how to make up the deficit by either reducing your standard of living or selling shares to raise cash.

Vanguard used to have three managed payout funds, but last year they closed two of them and merged their assets into the third. That's not necessarily a negative reflection on the funds - Vanguard probably just decided that there was too small of a market for this type of fund to justify keeping all three of them open.

All of the Vanguard target date retirement funds eventually merge into the Vanguard Target Retirement Income fund (VTINX), not into the Managed Payout fund. VTINX is a viable alternative for a retirement income fund, but Wellesley I think is much more popular, at least with the members of this forum.
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Old 02-07-2014, 02:02 PM   #4
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Consider just holding Wellesley of a balanced portfolio of your own and then selling what you need (as a planned amount) for your income. You don't need an annuity to withdraw from your retirement accounts.
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Old 02-07-2014, 02:33 PM   #5
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Quote:
Originally Posted by JerryinPA View Post
doesn't the Vanguard Managed Payout Fund do the same thing as an annuity, except that the Vanguard fund is an investment vehicle.
No, absolutely not.

There are many ways to successfully structure your retirement savings to provide retirement income. Mutual funds and annuities are two potential incredients. Both come in various flavors and you need to read up on some basics before you go too far down the road with these decisions.

You're dangerously over-simplifying.
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Old 02-08-2014, 06:03 AM   #6
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Quote:
Originally Posted by JerryinPA View Post
.... The wife and two Financial Advisors have pointed me toward various Annuities to create an income stream... Please teach me on this...
Hi Jerry,
Here's a link to a page that helps you understand whether or not an annuity is right for you. Quoting the opening paragraph: "Before you buy an annuity you need to know why you are buying it and what you expect it to do for you. Work through the five questions in this article to make sure the annuity you are buying is right for you". Should You Buy An Annuity - 5 Questions to Ask First
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Old 02-08-2014, 05:24 PM   #7
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Annuities are quite different. Generally speaking you are giving up control of your money to an insurance company, getting some guarantees but paying for those guarantees. What kind of annuity are you trying to compare the.MP fund to?
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Old 02-16-2014, 02:54 PM   #8
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Originally Posted by karluk View Post
The gimmick is that it's the experts at Vanguard, not you, who make the decision on the monthly payout. I would say that makes it a sound, objective decision, but it's not a decision that factors your need for retirement income into consideration. If the fund does poorly one year, Vanguard can and will reduce the monthly payout next year.
Bumping the thread a little, I was just looking at this fund today. While it isn't something I want to put money into any time soon, I'm soon going to roll my Fidelity 457 to an IRA at Vanguard and put that in essentially a "couch potato fund".

What makes me think of the Managed Payout Fund is that around age 80 give or take a few years all of my relatives seem to start losing mental acuity. Not dementia by any means but definitely "losing their edge". Therefore, if/when that happens to me that seems a good "set it and forget it" option.

This is a supplemental and not necessary source of income. Those are the pension and SS. But I want to leave the IRA untouched for now because if I croak in the next 8 years the pension goes down by 30% and that IRA, plus some other funds, will be enough to smooth the financial ride for DW. In 8 years DW will be 66 so she'll then be eligible for my full SS benefit, thus lessening her total reduction in income. At that point the IRA becomes "do whatever we want with it" money.

A complication is that I run in to RMD's on the IRA at the same time and according to their estimating calculator the managed 4% payout would be slightly less than the RMD initially and significantly less than that later on. This still means that one of us has to be able to figure what the RMD is (online calculators abound, I know) but if we've both "lost it" even that simplicity may not be enough.

I dunno, maybe by then they'll have a "managed payout for money subject to RMD" fund. That would be the ideal.

Any other thoughts/suggestions?
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Old 02-16-2014, 03:12 PM   #9
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Check with VG but I suspect that if the distributions are not sufficient to meet the RMD requirements then they might do some top up for you. My mom has money with Vanguard that is subject to RMDs and they just take care of it. In my case I have it scheduled to happen on her birthday.
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Old 02-16-2014, 03:18 PM   #10
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That's good news to hear. I'll check with them on Tuesday when they open.
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Old 02-16-2014, 03:28 PM   #11
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Bumping the thread a little, I was just looking at this fund today. While it isn't something I want to put money into any time soon, I'm soon going to roll my Fidelity 457 to an IRA at Vanguard and put that in essentially a "couch potato fund".

What makes me think of the Managed Payout Fund is that around age 80 give or take a few years all of my relatives seem to start losing mental acuity. Not dementia by any means but definitely "losing their edge". Therefore, if/when that happens to me that seems a good "set it and forget it" option.

This is a supplemental and not necessary source of income. Those are the pension and SS. But I want to leave the IRA untouched for now because if I croak in the next 8 years the pension goes down by 30% and that IRA, plus some other funds, will be enough to smooth the financial ride for DW. In 8 years DW will be 66 so she'll then be eligible for my full SS benefit, thus lessening her total reduction in income. At that point the IRA becomes "do whatever we want with it" money.

A complication is that I run in to RMD's on the IRA at the same time and according to their estimating calculator the managed 4% payout would be slightly less than the RMD initially and significantly less than that later on. This still means that one of us has to be able to figure what the RMD is (online calculators abound, I know) but if we've both "lost it" even that simplicity may not be enough.

I dunno, maybe by then they'll have a "managed payout for money subject to RMD" fund. That would be the ideal.

Any other thoughts/suggestions?
You asked for it. They've got it!
https://personal.vanguard.com/us/wha...umdistribution

"Vanguard's Required Minimum Distribution Service
Tap your retirement assets the easy way. Sign up for our free Required Minimum Distribution (RMD) Service and we'll calculate the amount you need to withdraw and distribute your assets the way you want."
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Old 02-16-2014, 03:35 PM   #12
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Sweet! Thank you.
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Old 02-16-2014, 03:58 PM   #13
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Sweet! Thank you.
When I turn 70, I get kicked out of my 401k. I think I will just put all my money in a Wellesley account, open a second taxable Wellesley account and just have them transfer the money each year. Then all I will have to do is figure out how to put the taxes on autopilot.
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Old 02-16-2014, 04:08 PM   #14
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Then all I will have to do is figure out how to put the taxes on autopilot.
I don't have a link but I'd think they can do that too. Recently I cashed out a small Merrill Lynch IRA (less than five figures) and they asked how much to send to federal and state taxes. When it gets to that point I'll ask Vanguard about it.
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Old 02-16-2014, 04:21 PM   #15
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I don't have a link but I'd think they can do that too. Recently I cashed out a small Merrill Lynch IRA (less than five figures) and they asked how much to send to federal and state taxes. When it gets to that point I'll ask Vanguard about it.
Thanks Walt34, That's part of it. The other part is doing the taxes and getting them filed. The "when it gets to that point" will either be at 70 or when DD says it time to come down from the mountains.

Last summer she asked if I was going to be a cantankerous old coot about that. I told her no. Then after spending the summer and fall up there I told her I changed my mind and she will probably have to drag me kicking and screaming all the way!
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Old 02-18-2014, 05:53 PM   #16
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This fund is basically a best practices of sort for anyone that wants a fund based on "modern portfolio theory". I would imagine that if you were to get a degree in finance that this is the type of asset allocation which they would recommend. You could also think of it as an endowment fund if you wanted.
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