Retirement plans

The Vanguard Group, Inc.

Retirement plans

Leave an inheritance behind

You don't have to spend all of your savings in retirement. In fact, many retirees want to leave their families an inheritance.

Leaving a legacy often means preserving at least a portion of your retirement savings. Instead of spending your savings, you would spend 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 Funds

Vanguard Managed Payout Funds are designed to provide retirees with regular income while preserving or even growing their savings. Each one has a built-in systematic withdrawal plan, generating monthly payment amounts that are set each year and expected to remain constant throughout the calendar year.

To set up a normal systematic withdrawal plan for your retirement savings, you would need to construct a portfolio, set a spending level, and monitor the portfolio over time. Because such a plan is built into a Managed Payout Fund, you get professional investment management combined with a convenient payout strategy.

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

Get help choosing a Managed Payout Fund

Things to keep in mind

Like all investments, Managed Payout Funds can lose money in the market, including the money you invest. They are not guaranteed to meet their investment objectives. If a Managed Payout 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. A Managed Payout Fund sets its payout amount at the beginning of each year based on, among other factors, the fund's performance over the past three years. This three-year average payout strategy can help smooth out the year-to-year changes, but substantial increases and decreases are possible.

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 bequest.

Action steps

If you wish to invest in a Managed Payout Fund:

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

Notes about risk

The Managed Payout Funds are not guaranteed to achieve their investment objectives, are subject to loss, and some of their distributions may be treated in part as a return of capital. The dollar amount of a 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 a 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 a fund could lose money over short, intermediate, or even long periods of time because each 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 funds are proportionately subject to the risks associated with their 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.

Each fund is expected to continue to make monthly cash distributions under its managed distribution policy irrespective of the fund's investment performance. Even if a fund's capital grows over short, intermediate, or long periods of time, it is possible that such growth will be insufficient to enable the fund to maintain the amount of its scheduled cash distributions without returning capital to shareholders. The fund's ability to achieve its objective of preserving capital ("growing capital" for Growth Focus Fund) while making monthly distributions is subject to market conditions at the time you invest and how long you hold shares of the fund. For example, buying shares when interest rates are low and stock prices are declining may result in lower distributions and less capital preservation or appreciation in the fund.

The funds' monthly distributions per share are calculated as of January 1 of that year and are generally expected to be fixed during the year.

Vanguard Managed Payout Funds may not be appropriate for all investors. For example, depending on the time horizon, retirement income needs, and tax bracket, an investment in a 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 a 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 Funds, in whole or in part, to meet their required minimum distribution (RMD) obligations. Distributions from the Managed Payout Funds are unlikely to precisely match an investor's IRA RMD obligations. In addition, use of the Managed Payout Funds 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 a Managed Payout Fund is right for you.

Before investing, consider the Managed Payout Funds' investment objectives, strategies, risks, fees, and expenses. Contact Vanguard for a prospectus containing this information. Read it carefully.