Leave an inheritance behind

You don’t have to spend all of your savings in retirement. In fact, many retirees want to leave some for their families to inherit.

Leaving a legacy often means preserving at least a portion of your retirement savings. Instead of spending your savings, you would try to spend just the investment earnings generated by your savings.

If you roll over your savings to a Vanguard IRA®, you can use a specialized investment option to generate retirement income and attempt to preserve your initial savings.

Vanguard Managed Payout Fund

Vanguard Managed Payout Fund is designed to provide retirees with monthly income. It invests in a complete portfolio diversified across different types of investments to preserve your savings and possibly provide some modest growth.

The income you receive is intended to consist mostly of the fund’s investment gains. The fund targets an annual payment of 4% of your balance.

Keep in mind that all investing is subject to risk, including the possible loss of the money you invest. Diversification does not ensure a profit or protect against a loss.

Setting up a normal systematic withdrawal plan for your retirement savings would require constructing a portfolio, establishing a spending level, and monitoring the portfolio over time. Because such a plan is built into the Managed Payout Fund, you get professional investment management combined with a convenient payout strategy.

Savings in the

Managed Payout Fund can be easily transferred to your beneficiaries when the time comes.

Things to keep in mind

Like all investments, Vanguard Managed Payout Fund can lose money in the market, including the money you invest. It is not guaranteed to meet its investment objective. If the fund does not achieve sufficient gains in the market to meet its payout goal, its payout may include part of your original investment. Remember also that the payout amount can go up or down from one year to the next.

Consider a blended approach

If the convenience of a Managed Payout Fund appeals to you but you’re not comfortable with the risks, consider combining retirement income options. For instance, you could use part of your savings to purchase an annuity to cover your regular expenses (for example, housing, utilities, health care) and invest the remainder in a Managed Payout Fund to provide extra income and a possible inheritance.

Action steps

If you wish to invest in Vanguard Managed Payout Fund:

  • Contact Vanguard to begin a rollover to a Vanguard IRA.
  • Determine how much of your savings to invest in the Managed Payout Fund.

There are important factors to consider when rolling over assets to an IRA or leaving assets in an employer retirement plan account. These factors include, but are not limited to, investment options in each type of account, fees and expenses, available services, potential withdrawal penalties, protection from creditors and legal judgments, required minimum distributions, and tax consequences of rolling over employer stock to an IRA.

The Managed Payout Fund is not guaranteed to achieve its investment objectives, is subject to loss, and some of its distributions may be treated in part as a return of capital. The dollar amount of the fund’s monthly cash distributions could go up or down substantially from one year to the next and over time. It is also possible for the fund to suffer substantial investment losses and simultaneously experience additional asset reductions as a result of its distributions to shareholders under its managed-distribution policy. An investment in the fund could lose money over short, intermediate, or even long periods of time because the fund allocates its assets worldwide across different asset classes and investments with specific risk and return characteristics. Diversification does not necessarily ensure a profit or protect against a loss in a declining market. The fund is proportionately subject to the risks associated with its underlying funds, which may invest in stocks (including stocks issued by REITs), bonds, cash, inflation-linked investments, commodity-linked investments, long/short market-neutral investments, and leveraged absolute return investments.

The Managed Payout Fund may not be appropriate for all investors. For example, depending on the time horizon, retirement income needs, and tax bracket, an investment in the Managed Payout Fund might not be appropriate for younger investors not currently in retirement, in IRAs or other tax-advantaged accounts for those investors under 59½, or for participants in employer-sponsored plans. Investors who hold the Managed Payout Fund within a tax-advantaged retirement account should consult their tax advisors to discuss tax consequences that could result if payments are distributed from their core account prior to age 59½ or if they plan to use the Managed Payout Fund, in whole or in part, to meet their required minimum distribution (RMD) obligations. Distributions from the Managed Payout Fund are unlikely to precisely match an investor's IRA RMD obligations. In addition, use of the Managed Payout Fund may be restricted in employer-sponsored plans by the terms of the governing plan documents and/or at the discretion of the plan administrator. Review the information carefully with your financial advisor before deciding whether the Managed Payout Fund is right for you.