The arrival several years ago of managed payout mutual funds promised to simplify retirement income decisions, at least for clients seeking income from their fund portfolios.
The funds offered a variety of structures and portfolio holdings.
Some were designed for finite terms and anticipated liquidation by a specified date while others planned to generate income indefinitely.
Fund sponsors stressed that payouts were not guaranteed and would vary with investment results.
Nonetheless, the idea’s simplicity and convenience were appealing: Invest in this fund and we’ll manage it to give you a monthly distribution. If you have a targeted distribution rate, you can invest in a fund that pays out at that level.
The financial crisis set back the funds but several have done well with the markets’ subsequent recovery. They’ve produced solid results and earned high ratings from Morningstar. Still, investors haven’t really bought into the concept and most of the target payout funds remain relatively small.
For example, Vanguard initially offered three managed payout funds with 3-, 5- and 7-percent distributions. The individual funds attracted only modest amounts—by big fund company standards, at least—and in early 2014 the firm merged the three funds into the Vanguard Managed Payout Fund (VPGDX). The combined fund has roughly $1.5 billion in assets and targets a 4 percent payout rate.