Overview of Vanguard’s Managed Payout Funds
Vanguard has three funds designed to provide monthly income while maintaining or growing your original investment.
The funds accomplish this by using a “fund of funds” concept, where your money is allocated across numerous other stock and bond funds, and the allocation is changed as the fund manager deems appropriate. If necessary, the fund may dip into principal to meet its targeted payout amount.
This strategy has the highest probability of success over long periods of time. If you pull your money out when the fund goes through a period of poor returns, you will be unlikely to experience the results the fund is designed to provide for you.
Income and principal are not guaranteed. Each fund has a targeted payout rate, detailed below.
Basics of the Managed Payout Funds
- Minimum investment: $25,000
- Expense ratios: .45% - .48%
- No front end sales charge or surrender charges.
Funds in Vanguard’s Managed Payout Fund Series
Managed Payout Growth Focus Fund
- Targeted payout rate: 3%, which means about $250 per month, per $100,000 invested
- Lowest initial payout; growth in payouts should exceed inflation
Managed Payout Growth and Distribution Fund
- Targeted payout rate: 5%, which means about $415 per month, per $100,000 invested
- Moderate initial payout; over time, payouts should keep pace with inflation
Managed Payout Distribution Focus Fund
- Targeted payout rate: 7%, which means about $580 per month, per $100,000 invested
- Highest initial payout; payouts are not expected to keep pace with inflation in the long term.
Vanguard's website provides a calculator to show you your expected income depending on the amount you invest and the fund you choose. The calculator currently shows a higher initial monthly payment what I estimate above.
Link to Fund Website For Detailed Information on Vanguard’s Managed Payout Funds