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YOUR MONEY Get Paid Every Month


Managed payout funds sound enticing, but are they right for you? ::


BY GREG BROWN A


s tens of millions of baby boomers prepare to retire, a newer income investment product has


resurfaced — the managed payout fund. Unlike annuities or life insurance products, these are mutual funds that are designed to generate a reliable monthly paycheck for retirees. The underlying cost of these


funds can be very low. Vanguard’s Managed Payout Fund (VPGDX), for instance, offers a distribution rate of 3.66 percent and a rock-bottom net expense ratio of 0.34 percent. Schwab offers three flavors of


these funds with low, medium, and high distribution rates, while Fidelity has several payout funds that aim to liquidate by a specific date, essentially a target-date fund in reverse.


Managed Payout Funds


Here’s a quick overview of some of the more prominent managed payout funds offered. You’ll want to also look into historical performance, asset allocations, and other metrics to make any final decisions.


FUND


SYMBOL DISTRIBUTION YIELD


Vanguard’s Managed Payout Fund VPGDX


Schwab Monthly Income Fund — Moderate Payout


Schwab Monthly Income — Enhanced Payout


Schwab Monthly Income — Maximum Payout


Fidelity Simplicity RMD Income Fund


SWJRX SWKRX SWRLX FIRNX 3.66% 2.92% 2.72% 2.50% 1.45% NET


EXPENSE RATIO


0.34% 0.65% 0.56% 0.46% 0.47% Note: Figures as of Feb. 26, 2018 Compare that to the high fees and


lockup clauses of the typical annuity and the attraction is obvious. The funds are still small relative


to the enormous annuity market, but they are growing. Income with freedom sounds


great. Yet, there are caveats, say financial advisers. Here’s a shortlist to help you sort the details.


NO GUARANTEES “Managed payout funds are more flexible than single premium immediate annuities, but can’t guarantee a set payment for life like an insurance company can offer via the annuity,” says Richard Groff, a certified financial planner in Peoria, Ariz. “They are diversified portfolios that are designed to make regular monthly payouts, and their asset allocation is adjusted by their


portfolio manager to account for the market environment.” That means that investors must


be prepared for what can happen to that income target if stocks decline sharply, bonds fail to deliver — or both. In simple terms, your monthly paycheck could decline with little warning. For that reason, Groff suggests combining a managed payout fund with an annuity to create flexibility. While an annuity can’t be liquidated easily, a fund can be sold if cash is needed. This kind of strategy would be best for the do-it-yourself or nonprofessional investors who may not know how to allocate their funds or set up a distribution plan properly, Groff says.


THE MARKET MATTERS Overall stock market downturns can be immensely difficult for the unprepared, contends Adam Koos, a certified financial planner in Columbus, Ohio. “I remember seeing mutual


funds similar to these back in 2000- 2002 and 2007-2009 that had great performance when the market was


62 NEWSMAX MAXLIFE | MAY 2018


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