In September of 2020, Vanguard’s VRIF ETF was launched. The ETF is an all-in-one retirement funding solution. It is designed to pay out 4% of the portfolio value in 12 monthly distributions. That level of income is set at the end of each calendar year, based on the year end value. If the Santa Claus rally continues, it looks like VRIF holders will be getting a modest raise.
Here’s my original review of the Vanguard VRIF ETF. Simple and cost effective asset allocation portfolios can (historically) work very well to provide consistent and generous retirement income. The Vanguard VRIF option does it all for you, from portfolio management to paying out that income each month. Of course, you can also create your own ETF portfolio for retirement funding.
The key message is that simple works. And fees are important. I am a big fan of financial planning at the right cost, but keep in mind that investment fees and advisory fees will reduce the amount that your investments can deliver each year. You would subtract that percentage off the top. That’s why you might consider a fee-for-service advisor. In the end they might provide that retirement funding plan that would include an investment option such as VRIF.
The VRIF payout.
The initial monthly distribution for VRIF was set at .083333 cents per unit.
As per the ETF mandate the distribution will stay the same throughout the year. The amount in your pocket includes fees and any withholding taxes within the ETF assets. It’s 4% in the clear. Of course, you would (most often but depending on your tax situation) create taxes payable from receiving the income in an RRSP, RRIF or taxable account. Within your TFSA the income would be tax free.
The performance of VRIF.
In addition to paying out the monthly distributions, the ETF has also increased in price by 4.5% from inception.
There are several trading days left in 2020, but if the trend continues VRIF will increase its payout in 2021. VRIF ETF holders might be getting a small raise. If we hold tight, it should be in the area of .087 cents per unit. As goes the stock and bond markets, so goes the VRIF distribution.
On the flipside if the markets had taken VRIF down, the distribution would have been decreased. That reduces the risks and provides the likelihood of more income stability over the decades. All said, that rolling income level (dependent upon markets year to year) might be seen as a slight drawback. If one has created their own ETF or stock portfolio they can decide to maintain or increase their income level, knowing that traditionally in most periods we can spend at a 4% area or more, inflation adjusted.
Of course that 4% retirement income rule is based upon a sensible balanced portfolio.
VBAL vs VRIF for retirement funding.
While it is a short period of study, VBAL has a slight edge over VRIF from VRIF inception. Of course Vanguard’s VBAL has a greater stock allocation at 60% vs 50% for VRIF, so we would expect more generous returns when stocks are performing well. VBAL is besting VRIF by about .5% from mid September to December 18.
Again, it would my position that one can do better if they manage their own ETF and stock portfolio. But I certainly understand the appeal of the convenience of VRIF for many retirees. It is a great option.
This week I posted an update on our US stock holdings that bested the S&P 5oo by a considerable amount. That mix certainly would have been able to create considerable retirement income in 2020 and over the last several years.
To manage risks, we hold those US stocks, Canadian dividend payers, Canadian bonds, US Treasuries, gold ‘stuff’, plus cash and bitcoin funds.
I’ll be back soon with a post on managing inflation risks in retirement. VRIF might not do the trick.
On My Own Advisor Mark reviews The Grumpy Accountant from Neil Winokur. It sounds like that is a solid book for the everyday Canadian.
As a tax accountant I am able to help a few hundred people or so each year, but I felt by writing this book I could help millions of Canadians. In my job I see how frustrating and complicated the system is (to your point Mark) and how it even affects people with modest incomes.
I love that book title. When I was a freelance ad guy my site and branding was thecrankywriter.com. A grumpy accountant is right up my alley.
On MoneySense Jonathan Chevreau offers the latest in his retirement series with how to make the most of your TFSA in retirement. Great post and a very important consideration.
And here’s my weekly column for MoneySense, making sense of the markets. I looked at bitcoin that left the gravity of earth, the Santa rally, Morningstar fund ratings actually worked and TD’s economic growth expectations for 2021.
Mike The Dividend Guy suggests he didn’t like RioCan even before they cut their dividend.
And for those who ‘give large’ during the holidays, have a look at this post on lowestrates.ca for when you might consider insurance.
The Sunday Newsletter.
Of course, have a look at The Sunday Investor newsletter with the weekly wrap of investment returns and economic numbers.
And on Retirement Manifesto Fritz looks at the cliff of irrelevance when we hang up on our working life.
Things that once mattered, suddenly don’t. Things that didn’t matter, suddenly do.
Don’t fret about it. Get on with finding the things that matter in this new phase of life.
Learn to fly.
Well said Fritz. And thanks to all for reading. You can follow this blog by way of the subscribe button on the right hand side of this post.
While I do not accept monies for feature blog posts please click here on the mission and ‘how I might get paid’ disclosures. Affiliate partnerships help me pay the bills for this site. That will allow me to keep this site free of ads, and hence, easy to read.
Check out EQ Bank for those who want to make their cash work a lot harder. The current high interest savings account rate is 1.5%. EQ Bank recently introduced RRSP and TFSA accounts with a rate of 2.3%. You’ll also find GICs.