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The Vanguard VRIF asset allocation ETF.

Dale Roberts

Yup. The RIF in the Vanguard retirement portfolio ETF ticker stands for Retirement Income Fund. It’s a newer retirement one ticket portfolio – ticker VRIF. Launched in 2020, 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? The Vanguard VRIF asset allocation ETF has was an early hit with retirees. But the uptake has been modest.

Soon after VRIF was lauched I wrote on 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 global ETF portfolio that is managed for you.

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.

Here’s is a RRIF withdrawal calculator on taxtips.ca.

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 Vanguard index ETFs. VRIF holds 4 Vanguard equity ETFs and 4 Vanguard fixed income ETFs. Here was the original mix in 2020. Keep in mind that the managers have the mandate to change the mix of stocks to bonds, plus the types of bonds and stocks in use. We might call that active asset allocation.

Here was the initial geographic breakdown of VRIF …

The fund was an Even-Steven split of stocks and bonds.

Here’s the assets heading into 2025

The fund is much more conservative, swinging to a target of 60% fixed income to 40% equities. There is also an overweight to Canadian corporate bonds, vs the total aggregate bond market.

How is the income created?

Given the starting yields, the ETF created 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. When the equity ETFs are not in a positive total return situation the share sales are a return of capital. They are essentially giving you part of your intial investment back as part of the portfolio income.

Don’t forget to join Retirement Club – details below

Vanguard said they would only anticipate a ‘once in ten years event’ where there is return of capital. But that event took place early in its history as 2022 was a down year for equities and bond markets. That said, return of capital is very tax efficient.

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. You are paid 4% of the portfolio value, based on the value of VRIF on December 31.

The key here is the Vanguard retirement income ETF – VRIF is looking to create a reliable income stream. It’s not a guarantee the income will remain steady, nor is it designed to create income growth. Thought it’s possible that VRIF could come through on either count.

The fund will also put guadrails on the variable income strategy. It can rise or fall no more than 5% from the previous year.

Growing income out of the gate

Due to the fact that 2021 was a positive year for VRIF, unitholders enjoyed an income boost of 7.56%, based on the share price increase.

The monthly distribution should increase to 0.0937 cents, from 0.08333. VRIF has offered an income boost to beat inflation in 2021. There was another modest increase in 2022.

Here’s the distribution scorecard

Monthly distributions per share, rounded.

We can see that the income has taken a round trip. Over time the income would have lost spending power due to inflation.

One curious event, the VRIF ETF price increased in 2023, but the income did not receive the same boost as it should. The 4% income is a “target” – they chose to reduce the income against their stated ‘mandate’.

I have contacted Vanguard, and I will report on the event when I hear back.

The ETF price (NAV) has also taken a round trip. While VRIF has paid out its distribution the price has gone nowhere. That’s not surprising given the defensive nature of the ETF and the fact that 2022 delivered an outlier year when stocks and bonds fell together.

Bonds are usually there to pick up stocks, but not when surprising inflation arrives.

VRIF had a positive return of 8.4% in 2024. But once again we see the first monthly payment in 2025 will remain unchanged at o.816 cents. Any increase will come with the February payment. I will update the post at that time.

What about robust and unexpected inflation?

I offered this in 2020 and 2021 before robust inflation took hold.

A simple stock and bond approach would not have been able to deliver a solid 4.5%’ish spend rate and keep up with inflation in periods of excess and lasting inflation. To protect your retirement from REAL inflation you would need to add some dedicated inflation fighters. You might consider a 10% allocation.

Most retirees are not prepared for rampant inflation or stagflation. They guess those events can’t happen, or they are not aware that stock markets are not a reliable near-term hedge.

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 greater stock exposure of VBAL vs VRIF it’s quite likely that VBAL would have the ability to create greater portfolio income over time.

Go another step further and Global-X one ticket HBAL is likely to do even better than VBAL. It has greater growth potential and greater tax efficiency due to the corporate class ETF inclusion.

In this post you’ll find the returns for the full suite of Canadian asset allocation ETFs.

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. You can adjust the risk level by adding more equities.

And yes, you can use those asset allocation ETFs to create retirement income.

Combine VRIF with other monthly income ETFs

If you seek regular generous income by way of ETFs you can combine VRIF with another income ETF or two. One very simple solution is to use the income versions of the BMO asset allocation ETFs. BMO created T-6 series ETFs that pay out at a rate of 6%. Like VRIF the distribution is based on the portfolio value on December 31st of the previous year. Given that, the distribution may not increase each year, but it will give you a boost beyond the VRIF 4%. A 50/50 split would give you a 5% starting spending rate (yield). You can also ramp up the growth potential by selecting ZGRO.

You could also consider BMO’s Monthly Income ETF, ticker ZMI.TO. The current yield is 4.8%. ZMI has a nice history of increasing the payouts …

You can also sprinkle in some specialty income. I use Hamilton’s enhanced utilities ETF (HUTS.TO) in a couple of accounts, but in very modest amounts. The fund applies 25% leverage.

All said, I think Vanguard’s one ticket retirement ETF – VRIF is a wonderful 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 c omplicated. 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.

You can also access software to discover the optimal order of account harvesting, from RRSP / RRIF / Taxable / TFSA / CPP and OAS / real estate income / company pensions and other income. You can hire someone to perform that service as well.

We are also reviewing the retirement cash flow calculators at Retirement Club. Retirees who self direct their own accounts can also develop their own cash flow plan. Many of the calculators are easy to use, and some are free-use.

Join Retirement Club

We launched a retirement investment club for Canadians in mid January.

It is a forum and hub for retirees and those approaching retirement. We discuss everything retirement – from helping you make sure you money lasts a lifetime (retirement calculators), retirement-friendly investments, building the Life Plan, physical and mental health, travel, hobbies. But of course, it will start with how to make your income last a lifetime. Retirement Club – Doing retirement right.

Use the Contact Form to send me a note and I will forward the Retirement Club outline 🙂

Dale

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