Question: Do you have an opinion on the Vanguard Managed Payout Funds as a way to tap portfolio income in retirement, as opposed to the usual 4% of assets at retirement date, and adjusted for inflation every year after that? I’m a regular listener to your podcasts and enjoy all the advice you’ve provided over the years.
Answer: I am retired and living off my investments, using the 4% variable distribution strategy. (If you don’t know what I mean by variable distribution I suggest you read Appendix H of “Financial Fitness Forever,” ”Withdrawing Money When You’re Retired”). I would not use the Vanguard Managed Payout fund (VPGDX) as it isn’t close to what I want for my asset allocation. It is overweighted to U.S. equities, overweighted to large cap growth, underweighted to bonds (I have 50% of my portfolio in bonds), and holds asset classes I don’t think help – and may even hurt – your returns. I’m not a fan of commodities or long short hedge funds. Their market neutral fund lost 1.4% last year and compounded at 1% a year for the 10 years ending Dec. 31, 2012.