Yup. The RIF in the Vanguard retirement portfolio ETF ticker stands for Retirement Income Fund. It’s a new retirement one ticket portfolio – VRIF. It’s a diversified fund of funds designed to deliver a consistent 4% income stream. The one ticket asset allocation portfolios are certainly game changers. Will VRIF change the game for the better for retirees as well?
If you’re new to the one ticket world you might have a read of my latest one ticket review for the TD One-Click Portfolios. It’s investing in its simplest and perhaps most effective form. You enter a four-letter ticker symbol and you buy yourself a diversified ETF portfolio.
And for those in the wealth-building stage here’s some help on which one ticket portfolio should I buy? If you can buy a high fee mutual fund, you can buy a far superior one ticket ETF. Of course, please ensure that you understand the risks and ‘what you’re getting into’.
One ticket ETFs for retirement.
What is the Vanguard retirement one ticket portfolio – VRIF?
It’s a globally diversified ETF portfolio designed to deliver a consistent stream of 4% income. And that 4% is based on the total value of your VRIF holding. For example, if you hold $100,000 of VRIF it will pay you $4,000 total throughout the year, divvied up into monthly installments. Those payments would be delivered to the cash component of your brokerage account.
You can hold Vanguard’s VRIF in an RRSP, TFSA, RESP, Non Registered, RDSP and DPSP accounts. And yes you can hold it in a RRIF account.
In RRIF accounts (designed for creating retirement income) you are mandated to take out a minimum amount or percentage each year, and that minimum increases each year. Keep in mind that RRIF minimum payments have been reduced by 25% in 2020.
If you are required to take out $10,000 in a given year (from your RIFF) and VRIF is only paying you $8000 in that year, your discount broker would be required to use cash in the account, or sell shares to make up the additional $2000 that is required.
What’s in the Vanguard VRIF ETF portfolio?
It’s a low-cost retirement income ETF, made up of 8 existing low-cost underlying Vanguard index ETFs – 4 Vanguard equity ETFs and 4 Vanguard fixed income ETFs. Here’s the asset table courtesy of Boomer and Echo.
Here is the geographic breakdown of VRIF …
- Canada – 35%
- United States – 20%
- Developed ex North America – 44%
- Emerging markets – 1%
The fund is an Even-Steven split of stocks and bonds.
How is the income created?
The ETF will create the cash flow by way of 60% from actual income from assets and 40% from capital appreciation. That is to say the fund will sell stock and bond shares to get to that 4% payment level. Think of it as a total return approach for retirement funding. In most cases the share sales would likely come after the stock or bond component has increased in price. You’re harvesting your price gains to create retirement income.
Vanguard said they would only anticipate a ‘once in ten years event’ where there is return of capital. Return of capital is an event where they would be giving you your own money back.
They have back tested the approach over several decades.
How is the 4% income determined?
The 4% income value will be based on the year end value of your holdings. If your portfolio value at year end is $200,000, VRIF would pay you $8,000 annually or $666 monthly.
Of course it’s possible that your income stream could increase or decline year-by-year based on the value of your VRIF holdings. If your year-end portfolio value the next year is $180,000 the annual payment would decline to $7,200.
The key here is the Vanguard retirement income ETF – VRIF is looking to create a reliable income stream. It’s not a guarantee for the income to remain steady, nor is it designed to create income growth. Thought it’s possible that VRIF could come through on either count.
Why use the Vanguard retirement one ticket – VRIF?
The main benefit is convenience. You buy the ETF, you get a 4% income stream without having to sell any shares or units. Vanguard does the work for you, the payments arrive in the cash balance in your discount brokerage account.
Could you do this yourself with a ‘traditional’ one ticket portfolio? Absolutely. You would simply sell shares to create the needed income. Though you would likely have trading costs to sell those shares of course. Costs might be a consideration.
Vanguard is not saying this would be more successful than their 60% stock and 40% bond one ticket ETF – VBAL. It’s just a matter of convenience and reliability. With the 10% greater stock exposure of VBAL vs VRIF it’s quite likely that VBAL would have the ability to create greater portfolio income.
Go another step further and Horizons one ticket HBAL is likely to do even better than VBAL. It has greater growth potential and greater tax efficiency.
Create your own retirement ETF Portfolio.
Of course you can also create your own ETF Portfolio for retirement funding. Simple works. I had offered as an example (not advice) this ETF portfolio for retirees. That portfolio idea combines greater income and the total return component.
All said, I think Vanguard’s one ticket retirement ETF – VRIF is a wonderful new addition to the one ticket family. It will demonstrate to investors how easy it is for ETFs to work for retirement funding. Simple works.
I witnessed how simple can work wonders for retirees by way of the Tangerine Portfolios. You can set up monthly auto payments on most of the account types for the Tangerine Portfolios.
Retirement and that plan.
That said, retirement funding is more than complicated. There are so many moving parts. And those parts don’t stand still as we move through the stages of retirement. Most of us will need the help of a retirement specialist. And you can pay for service as you need it. You might consider an advice-only planner.
And in the end, Vanguard’s VRIF might be a piece of your retirement funding team.
Thanks for reading. Please fire away in the comment section. I will contact Vanguard who are happy to answer any questions. And what to you think of the retirement one ticket portfolio – VRIF? We’ll see you in the comment section.
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