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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