VRIF: Vanguard Retirement Income ETF

[Smith1776]

Canada finally has a well constructed managed payout solution in the form of VRIF. It targets a 4% distribution into perpetuity. I bought a few shares just for fun. This should be a great fund for retirees. And when combined with a little bit of gold it should make for a hell of a portfolio.

Unlike current solutions in Canada:

- It has a low management fee (29 bps)
- It uses total market funds instead of a dividend tilt
- The asset allocation is dynamic based on valuations (currently 50/50 stocks and bonds to start with)
- Minimal use of return of capital. Vanguard expects that to only happen once every ten years or so.

https://www.vanguardcanada.ca/advisors/ ... 0/balanced

Also a multi-part review from the Canadian Couch Potato

https://canadiancouchpotato.com/2020/09 ... ncome-etf/

https://canadiancouchpotato.com/2020/09 ... come-from/

[Vil]

- The asset allocation is dynamic based on valuations (currently 50/50 stocks and bonds to start with)

There in Canada you are lucky ones ... Given the underlying multi-asset allocations of VRIF and the goals it has, appears that there was quite some brainstorming that took place in Vanguard offices. Though a question - I had a glance over couple of Vanguard documents (ETF Factsheet, Prospectus, etc.) and was not able to spot the 4% target, where did you see it ?

[Smith1776]

There in Canada you are lucky ones ... Given the underlying multi-asset allocations of VRIF and the goals it has, appears that there was quite some brainstorming that took place in Vanguard offices. Though a question - I had a glance over couple of Vanguard documents (ETF Factsheet, Prospectus, etc.) and was not able to spot the 4% target, where did you see it ?

Good question. I don't see it on the ETF info page either. It was in their product announcement though.

https://www.vanguardcanada.ca/individua ... rement.htm

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[Vil]

Good question. I don't see it on the ETF info page either. It was in their product announcement though.

Yup, might be that's their good will for the time being, as they say - 4% yield at launch...

I do not have good insights on this particular topic, but just wondering what would happen in the near (?) future with all those public pension funds that still assume a 6%–7% annual return ..

[mathjak107]

fidelity had some funds at one time that tried to do something with a 4% draw rate ..but if you read the prospectus it said based on outcomes the fund may deplete sooner then later ..they ended up doing away with them .

just about any allocation using 35% equities can almost be counted on to provide 4% inflation adjusted for at least 30 years . we had12 failures with conventional models using 35% equities ....we had 5 failures with 60/40

35% equity

FIRECalc Results
Your spending in every year after the first year will be adjusted for inflation, so the spending power is preserved.

FIRECalc looked at the 120 possible 30 year periods in the available data, starting with a portfolio of $1,000,000 and spending your specified amounts each year thereafter.

Here is how your portfolio would have fared in each of the 120 cycles. The lowest and highest portfolio balance at the end of your retirement was $-173,739 to $3,558,380, with an average at the end of $791,616. (Note: this is looking at all the possible periods; values are in terms of the dollars as of the beginning of the retirement period for each cycle.)

For our purposes, failure means the portfolio was depleted before the end of the 30 years. FIRECalc found that 12 cycles failed, for a success rate of 90.0%.


60/40

FIRECalc Results
Your spending in every year after the first year will be adjusted for inflation, so the spending power is preserved.

FIRECalc looked at the 120 possible 30 year periods in the available data, starting with a portfolio of $1,000,000 and spending your specified amounts each year thereafter.

Here is how your portfolio would have fared in each of the 120 cycles. The lowest and highest portfolio balance at the end of your retirement was $-272,474 to $4,564,899, with an average at the end of $1,421,482. (Note: this is looking at all the possible periods; values are in terms of the dollars as of the beginning of the retirement period for each cycle.)

For our purposes, failure means the portfolio was depleted before the end of the 30 years. FIRECalc found that 5 cycles failed, for a success rate of 95.8%.

[Smith1776]

Thanks for the analysis mathjak. Indeed, I would not be surprised if the return profile was rejiggered as needed to make it sustainable during trying market periods.

I am of the belief that income oriented investing has behavioural benefits that are generally understated. VRIF allows investors to focus on income and potentially ignore market fluctuations and stay the course. However, it does so while using market cap weighted funds and does not tilt at all towards dividends. This can be a potent combination.

[Smith1776]

For those interested in this fund it should be noted that Vanguard is not targeting a fixed 50/50 stock and bond allocation. They are saying that the allocation may change fairly drastically depending on market conditions.